Irish consumers enter 2006 in buoyant mood with a generous Budget driving sentiment to a six-month high in December.

Falling oil prices also boosted confidence among the State's spenders, according to the data compiled by IIB Bank and the ESRI. The consumer sentiment index rose to 98.2 last month, from 94 in November, its third consecutive monthly rise.

Austin Hughes, chief economist at IIB Bank, said a positive Budget, strong growth in the number of people at work and continued buoyancy in the property market had offset concerns over the first increase in euro zone interest rates in five years and labour issues at Irish Ferries. "The most positive element of the December survey results relate to the outlook for the Irish economy in the year ahead," said Mr Hughes. "The key driver seems to have been a very positive assessment of the Budget."

For the first time since May, more consumers were optimistic than pessimistic about the prospects for the Irish economy over the next 12 months. Around one in three consumers expect a stronger economy in 2006 and just one in four are concerned about the prospects for the economy.

This compares with the September survey, where only one in eight consumers felt the economy would improve in the coming year. At the same time, more than half of those questioned feared a deterioration in the health of the economy.

Mr Hughes said the improvements in sentiment could be attributed to a range of influences, including the failure of oil to reach $100 a barrel as predicted by some commentators. Still, the presiding influence was most likely to have been December's Budget, he said.

He said that while the continued improvement in consumer sentiment bodes well for the outlook for consumer spending, it was worth noting that one element of the survey, namely that relating to the purchase of so-called big ticket items, deteriorated last month. This implies that consumers may be concerned about the possibility of further interest rate increases and the effect they would have on any monthly repayments.

Mr Hughes said that while he expects higher borrowing costs and a range of new year price increases to restrain spending in the early part of this year, the maturity of the first Special Savings Incentive Accounts (SSIA) from May will help boost consumer spending by about 5.5 per cent in 2006.

Consumer confidence rose throughout the euro zone last month hitting three-year highs in December and business confidence jumped to early 2005 levels, adding to signs economic recovery is gathering pace, Eurostat data showed.

"This brings sentiment up to its long-run average. But whether higher confidence is sufficient to raise spending is unclear," Lehman Brothers investment bank said in a note.

But the monthly survey showed that euro zone consumers expected lower savings in the future and that their situation would improve. They also took a much more positive view on unemployment. - (Additional reporting, Reuters)