Bank of Ireland Economic Pulse falls slightly in February

  • Consumers more cautious this month
  • Firms slightly more upbeat
  • House price expectations positive across the country
  • Three in five concerned about providing for a comfortable retirement

The Bank of Ireland Economic Pulse stood at 92.6 in February 2017. The index, which combines the results of the Consumer and Business Pulses, was down 0.6 on January and 4.4 lower than this time a year ago.

With Brexit and Trump continuing to weigh on minds, households were in a more downbeat mood about the general economy and their own financial situation this month. In contrast, the Business Pulse saw a small uptick in February, led by improved sentiment among firms in the industry and services sectors. The Retail and Construction Pulses fell back however, unwinding the gains they made last month.

Discussing the Economic Pulse, Dr. Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said; “Household confidence retreated this month, while business sentiment picked up a little. The upshot is a broadly unchanged Economic Pulse reading for February.”

Consumer Pulse

The Consumer Pulse lost ground in February 2017, coming in at 89.8 down 4.6 from last month. The protectionist policy stance that President Trump has taken since assuming office has dominated the headlines from the outset. Concerns about this and Brexit led households to scale back their assessment of the general economic situation in February. Consumers were also more downbeat about their own finances and with the January seasonal bounce wearing off, buying sentiment softened with one third (33%) considering it a good time to purchase big ticket items such as furniture and electrical goods this month, compared with 44% last month.

Dr. Loretta O’Sullivan added: “Consumers sounded a note of caution in February as seasonal effects wore off and concerns about Brexit and Trump took over. With Prime Minister May setting out the UK’s plan for after it leaves the EU and the Supreme Court and MPs paving the way for the triggering of Article 50 by the end of March, Brexit was certainly back on the agenda this month.”

This month’s Pulse also looked at households’ savings and investments. The results show that the majority have a deposit/savings account, with employer-provided and personal pension plans, bonds and shares, and property other than the main home featuring as well, albeit to a lesser extent. Topping the list of reasons for putting money aside are having a rainy day fund and providing for retirement and later life needs.

40% indicated that they have a long term financial plan in place to cover issues such as life insurance, illness and inheritance; but three in five are concerned about being able to provide for a comfortable retirement.

Dr. Loretta O’Sullivan said: “Like other countries, population ageing is something that Ireland will face in the coming decades. People tend to underprovide for retirement though, with insights from behavioural economics research suggesting that one reason for this is myopia or a bias towards the present.”

Housing Pulse

The Housing Pulse eased back to 108.2 in February 2017, from a 13 month high of 111.5 in January. Price expectations remained in firm positive territory though. Some 15,000 new houses were built last year, but as this is only around half of what is needed to meet estimated demand, prices look set to continue on an upward trajectory. The majority are also of the view that rents will rise over the coming year.

Commenting on the findings, Dr. Loretta O’Sullivan said, “We saw the introduction of rent caps in Dublin and Cork city towards the end of 2016, with additional pressure zones added in late January. While it is still early days for the new caps, there may be some tentative signs emerging that they are starting to impact expectations. For example, the percentage of survey respondents anticipating rent increases in excess of 5% has fallen steadily in Dublin, from 44% last November to 32% this month.”

Business Pulse

The Business Pulse stood at 93.2 in February 2017, broadly unchanged on January’s reading but mixed across the sectors. The Industry and Services Pulses put in good performances this month, with firms upgrading their expectations for near-term business activity, as well as hiring. Retailers were also more upbeat about sales prospects for the next 3 months, though the Retail Pulse fell back, as did the Construction Pulse which was weighed down in part by softer order books.

Brexit and Trump-related uncertainty was called out by a number of firms again this month and remains a downside risk for the wider economy. The February findings indicate that the majority of businesses do not expect to change their selling prices in the period ahead, but generally point to pressure on input costs (excluding labour costs) over the past 3 months.

Dr. Loretta O’Sullivan commented: “While the weak pound is expected to push down on import prices, the uptick in oil prices in recent months is working in the opposite direction, with 40% of firms reporting an increase in input costs over the past 3 months.”

Regional Pulse

The Bank of Ireland Regional Pulses bring together the views of consumers and firms in different parts of the country. The 3 month moving averages show an improvement in sentiment in Dublin, Munster and Connacht/Ulster in February 2017, with the reading for the Rest of Leinster little changed on the month.
Dublin Pulse = 93.2 +1.9 points on the previous survey;

  • Rest of Leinster = 91.8 – 0.1 points;
  • Munster = 92.9 +2.8 points;
  • Connacht/Ulster = 92.6 +5.9 points.

The consumer picture was mixed this month; households in Dublin, Munster and Connacht/Ulster downgraded their assessment of the economic outlook, with consumers’ mood also more downbeat when it came to their own financial prospects, except in Munster. House price expectations remained in positive territory across the country, and the February data show that firms in each region upgraded their expectations for near-term business activity and hiring.

Dr. Loretta O’Sullivan concluded: “Recent CSO data show that there was an annual increase in jobs in all regions in the fourth quarter of last year, while the Regional Pulses indicate that firms across the country plan on hiring over the coming months.”