Up to 40 per cent of Irish firms in industry and services are planning to reward staff with pay hikes in the coming 12 months, according to a survey.

Bank of Ireland’s new “Economic Pulse” bulletin reports more than a quarter of firms in construction and retail, which fared particularly badly in the recession, are also planning to increase wages in response to an upturn in trade.

The findings are based on two surveys of more than 1,000 households and 2,000 businesses conducted by Ipsos MRBI for the bank.

The research, which also feeds into a wider European Commission survey, reveals nearly four in 10 consumers expect their household financial situation to improve in the next 12 months, while 47 per cent expect it to remain largely static.

More than half of companies across all sectors said they expect to increase business activity in the next three months.

The study indicated that the majority of consumers surveyed expected house prices and rents to increase over the next 12 months, while two thirds thought it was cheaper to buy a property than rent in their area.

As economic conditions continue to improve, one third of households said it was a good time to purchase big-ticket items such as furniture and electrical goods, and a quarter said they intended to buy a car in the next year.

The study also revealed that two thirds of respondents said they were likely to put money aside in the next 12 months.

Just over half expected the State’s jobless rate to fall further.

Bank of Ireland chief economist Loretta O' Sullivan said the findings show that sentiment among consumers and firms remains at a high level.