Bank of Ireland : Economic Pulse increases in December

Bank of Ireland Economic Pulse increases in December

• Both consumer and business sentiment improve
• One in two households thinks house prices will rise in the coming year
• One in five firms expects to increase near-term selling prices

The Bank of Ireland Economic Pulse came in at 70.2 in December 2020. The index, which combines the results of the Consumer and Business Pulses, was up 3.2 on last month but down 12.8 on a year ago.

The backdrop to this month's survey was mixed - the fieldwork was being out carried out as the country exited a six week period of Level 5 restrictions and as plans for the rollout of a COVID-19 vaccine were being drawn up; but also as the Brexit transition period neared its end date with no clarity on the nature of the future EU-UK trading relationship. So while the former lifted the spirits of households and firms, the latter tempered the bounce in confidence.

Commenting on December's Economic Pulse, Dr Loretta O'Sullivan, Group Chief Economist for Bank of Ireland said: 'The December Economic Pulse benefitted from the re-opening of the economy at the start of the month. Consumer and business sentiment both tracked higher as households and firms geared up for the festive season and took comfort from developments on the COVID vaccine front. But with virus cases on the rise again and the Government announcing another round of restrictions in recent days, the mood heading into the New Year will likely sour. In contrast, the clinching of a Brexit trade deal on Christmas Eve is expected to be met with a sense of relief, bitter sweet though it may be.'

Consumer Pulse

'Buoyed by festive and vaccine cheer, the Consumer Pulse rose for a second month running in December.'

• Consumer Pulse up in December
• Economy re-opens ahead of Christmas
• Increased spending opportunities

The Consumer Pulse recovered further ground in December 2020, coming in at 66.2 (up 5.9 on last month but down 10.2 on a year ago). Helped by the easing of restrictions at the start of the month and the knowledge that a vaccine is on the way, households were more positive about the general economic situation and their own financial circumstances. Buying sentiment also firmed this month - just over a quarter considered it a good time to purchase big ticket items compared with 22% in November - whereas savings sentiment softened as opportunities for social consumption increased and concerns about job security eased.

Business Pulse

'The rebound in the Business Pulse continued this month, though it was a nuanced picture.'

• Business Pulse ticks up in December
• Hiring intentions strengthen
• One in five firms expects to increase selling prices

The Business Pulse stood at 71.2 in December 2020, up 2.5 on last month but down 13.4 on a year ago. Unsurprisingly, the re-opening of non-essential retail / services businesses and the loosening of restrictions on the hospitality sector in the run up to Christmas lifted the Retail and Services Pulses. The Industry Pulse also rose this month, albeit more modestly - firms in Brexit-exposed indigenous sectors were more circumspect about near-term prospects for business activity - while uncertainty was a concern for larger building firms which weighed on the Construction Pulse. The December survey also finds that 22% of businesses expect to raise their selling prices in the next three months, in part because more red tape in trade with the UK (even with a deal) is set to add to costs.

• Industry Pulse = 81.6 +1.5 points on the previous survey;
• Services Pulse = 66.4 +2.6;
• Retail Pulse = 78.4 +7.1;
• Construction Pulse = 72.1 -5.0.

Housing Pulse

'Having risen for an eighth consecutive month in December, the Housing Pulse has almost returned to its pre-pandemic level.'

• Housing Pulse rises in December
• Firmer readings in all regions
• One in two thinks house prices will increase in the coming year

At 82.0 in December 2020, the Housing Pulse was 10.4 higher than last month but 2.6 lower than a year ago. The improvement this month was broad based, with households in all regions upping their expectations for future house price gains. Housing demand has held up relatively well in the face of the COVID-19 shock and while the hit to supply has also been less than feared, the number of new homes coming on stream remains shy of what is needed. Cost pressures are picking up too, with over half of builders reporting an increase in non-labour input costs in the past three months.

Regional Pulse

The Bank of Ireland Regional Pulses bring together the views of households and firms around the country. The 3 month moving averages show that sentiment was up in all four regions in December 2020.

Three month moving averages:

• Dublin Pulse = 69.4 +1.3 points on the previous survey;
• Rest of Leinster = 65.1 +2.0;
• Munster = 60.8 +1.9;
• Connacht/Ulster = 63.4 +1.7.