Bank of Ireland Economic Pulse falls slightly in May

  • Consumer confidence little changed on the month
  • Services firms more cautious, Construction sector more positive
  • Four in five think house prices will rise over the coming year

The Bank of Ireland Economic Pulse stood at 92.4 in May 2017. The index, which combines the results of the Consumer and Business Pulses, was down 2.7 on April’s reading and 8.9 on this time last year.

Household confidence held up reasonably well amid much activity on the international stage – as did sentiment among firms in the industry, retail and construction sectors. However, the Services Pulse fell back in the month, which pulled down the Business Pulse.

Discussing the Economic Pulse, Dr. Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said: “It has been an eventful few weeks with Prime Minister May calling a general election in the UK, the Presidential election in France, President Trump setting out his tax plans and the European Council announcing its guidelines for the Brexit negotiations. These developments have resonated globally and are also important for Ireland. In terms of sentiment, we’re seeing a mixed picture this month, with consumers holding steady but some softness on the business side weighing on the headline Economic Pulse.”

Consumer Pulse
At 94.1, the Consumer Pulse was broadly unchanged in May 2017. Households were slightly more upbeat about the current economic situation this month, but a bit unsure about their own finances. The buying climate remained positive though, with 38% considering it a good time to purchase big ticket items such as furniture and electrical goods (the same as in April), while 27% expect to increase instore spending over the coming year and one in five expect to spend more online.

Dr. Loretta O’Sullivan said: “The sun is out and households are preparing for summer, with two in three planning on spending the same or more on holidays this year compared with last year. With holidaying at home the preference for some, this bodes well for the tourist industry here.”

Business Pulse
The Business Pulse came in at 92.0 in May 2017, down 3.3 on April and a drop of 11 on this time last year. The softer reading this month owes much to the Services Pulse, which gave up last month’s strong gains. More positively, sentiment among industrial firms and retailers increased in May, with the construction sector also putting in a good performance and leading the charge on the hiring intentions front. While the majority of businesses do not expect to change their selling prices in the period ahead, the survey finds that builders are more likely to pass on rising input costs (excluding labour) with just over one in three looking to increase prices in the next 3 months.

Dr. Loretta O’ Sullivan said: “We’re seeing contrasting sentiment across the sectors this month, with construction particularly positive, but services less so. Sterling was on the agenda for a number of firms this month, as the news flow coming out of the UK and Europe led to some volatility. The pound strengthened to 83.5p against the euro after Prime Minster May called a snap election for June 8th, but lost ground again following the outcome of the French Presidential election. It has weakened further to 87p in recent days as the start of the Brexit negotiations looms.”

Housing Pulse
The Housing Pulse stood at 115.3 in May 2017. This was down 0.9 on last month’s record high but up 11.3 on a year ago. The findings show that four in five think house prices will rise over the coming year, while 70% expect rents to increase. The market continues to be characterised by disequilibrium, with the new help-to-buy scheme for first time buyers and the loosening of the Central Bank’s loan-to-value restrictions for this group supporting demand, whereas a shortage of labour and uncertainty top the list of factors currently weighing on building activity.

Dr. Loretta O’Sullivan commented: “While builders are generally positive about near-term prospects and housing supply is picking up, it is still well shy of demand which is putting pressure on prices. A shortage of labour is a key issue for the sector, with one in three construction firms finding it difficult to get workers.”

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 in May 2017, with little change in the Rest of Leinster, some softening in Munster and more so in Connacht/Ulster.
Households in Munster were particularly upbeat about the current economic situation this month; whereas households in Connacht/Ulster were noticeably downbeat about their own finances. The May survey also finds that near-term prospects for business activity and hiring were in positive territory in all regions, with Dublin ahead on the jobs front.

Three month moving averages:

  • Dublin Pulse = 94.3 + 1.8 points on the previous survey;
  • Rest of Leinster = 90.1 – 0.2 points;
  • Munster = 92.9 – 0.5 points;
  • Connacht/Ulster = 92.0 – 3.7 points.

About the Bank of Ireland Economic Pulse:
The Bank of Ireland Economic Pulse survey is conducted in conjunction with the European Commission, with the data feeding into the EU Commission’s Joint Harmonised EU Programme of Business and Consumer Surveys, a Europe-wide sentiment study running since the 1960s. The Economic Pulse surveys are conducted by Ipsos MRBI on behalf of Bank of Ireland with 1,000 households and over 2,000 businesses on a range of topics including the economy, their financial situation, spending plans, house price expectations and business activity.