Consumers are substantially more optimistic about their household finances thanks to last year's budget, a survey found today.
Despite higher borrowing costs as interest rates rise, people's personal wealth is expected to improve over the next 12 months, according to the latest IIB/ESRI Consumer Sentiment Index.
The monthly report said consumers feel the budget package announced by Minister for Finance Brian Cowen will substantially boost their spending power this year.
The index rose from 87.9 in November to 89.8 in December, the fourth consecutive monthly increase. But it is well below the level of 98.8 set in December 2005 and a considerable distance below its historic average of 101.3.
Austin Hughes, chief economist at IIB bank
Austin Hughes of IIB Bank noted: "The improvement in consumers' assessment of their household finances was the largest in more than three years.
"However, because spending power has been squeezed by rising energy prices, higher borrowing costs and more general increases in the cost of living, consumers still remain less optimistic about their personal finances than they have been in recent years."
Mr Hughes also said consumers remained cautious about making major purchases in early December - partly because many people wait until prices come down in the post-Christmas sales.
"More fundamentally, it also suggests higher borrowing costs and a cooler property market are having a negative impact on spending plans," he said.
The IIB/ESRI survey said the budget had been given a thumbs up even though consumers were quite cautious when it comes to spending.
It warned that higher interest rates and a cooler property market are taking their toll on consumer sentiment but added that the budget is unlikely to cause the economy to overheat and should underpin a healthy increase in consumer spending.
IIB Bank said battle between maturing SSIAs and interest rates may well be the decisive factor in determining whether a more encouraging trend in consumer sentiment is sustained this year.