Further Covid-19 restrictions and rise in virus cases eroded business and consumer confidence in October.

The Bank of Ireland Economic Pulse came in at 56.6 in October 2020. The index, which combines the results of the Consumer and Business Pulses, was down 8.6 on last month and 20.5 lower than a year ago.

October marked a new low for consumer sentiment while businesses downgraded their near-term expectations for activity and jobs.

“The growth outlook for the fourth quarter of the year is challenging”

The twin threats of the pandemic and Brexit were to the fore this month, with the entire country moving to Level 3 of the ‘Plan for Living with COVID-19’ when the survey was conducted and tensions between the UK and EU over future trading arrangements coming to a head.

Mounting speculation that the rise in virus cases would necessitate the imposition of further restrictions added to the air of anxiety, knocking confidence among households and firms.

“The Economic Pulse dropped sharply in October, with both consumer and business confidence well down on the month,” said Dr Loretta O’Sullivan, Group Chief Economist for Bank of Ireland.

“This is disappointing but not surprising given the backdrop to this month’s survey. Heightened Covid and Brexit uncertainty saw households and firms pare back their expectations for the economy, business activity and jobs and with Level 5 restrictions now imposed, the growth outlook for the fourth quarter of the year is challenging.”

Business Pulse

The Business Pulse stood at 58.6 in October 2020, down 9.6 on last month and 20.2 lower than a year ago. While Budget 2021 included additional supports for firms, Covid-19 and Brexit-related uncertainty weighed on the mood.

All four sectoral Pulses posted weaker readings this month, with the Services Pulse seeing the biggest drop amid further restrictions on social interactions and the hospitality sector (businesses in the latter were extremely downbeat about prospects for activity in the next three months).

The October survey also looked at growth ambitions over the medium term. The results show that 56pc of firms are planning on expanding in the next one to three years, a bit below the pre-pandemic (January) figure of three in five; while 11pc intend to scale down (up from around 8pc).        

  • Industry Pulse: 73 (down 2.5 points on the previous survey)
  • Services Pulse: 50.0 (down 13.9 points)
  • Retail Pulse: 71.2( down 5.0 points)
  • Construction Pulse: 67.6 (down 1.7 points)

Consumer Pulse 

“October was the weakest reading on record for the Consumer Pulse,” said O’Sullivan, pointing out that households are gloomier about the economic outlook and that three-in-four expect unemployment to rise.

At 48.5 in October 2020, the Consumer Pulse was down 4.3 on last month’s reading and 21.4 lower than a year ago.

Households took a more pessimistic view of prospects for the economy and jobs this month as public health-related restrictions were tightened and fears of a ‘no-deal’ Brexit increased.

Reflecting the uncertain environment, buying sentiment was also a touch softer than in September while savings sentiment was a little firmer – a fifth of households considered it a good time to purchase big ticket items (down from a quarter), whereas four in five considered it an appropriate time to save (up from 75pc).

Housing Pulse

“The Housing Pulse rose in October, bucking the trend of softening sentiment elsewhere,” O’Sullivan explained with 35pc expecting house prices to increase in the next 12 months. Buying continues to trump renting.

With households in Dublin, the Rest of Leinster and Munster a little more positive about the outlook for house prices, the Housing Pulse ticked up to 64.8 in October 2020. This was 2.0 higher than last month’s reading but down 8.5 on a year ago.

This month’s survey also finds that one in ten is planning on buying or building a home over the coming year, and that three in four think it is cheaper to buy than rent in their area when the typical monthly mortgage repayment and the typical monthly rent for similar properties are compared.

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 down across the board in October 2020.

  • Dublin Pulse: 64.9 (down 0.8 points)
  • Rest of Leinster: 61.5 (down 2.7 points)
  • Munster: 57.0 (down 0.5 points)
  • Connaught/Ulster: 59.0 (down 4.9 points)

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 surveys are conducted by Ipsos MRBI on behalf of Bank of Ireland with 1,000 households and approximately 2,000 businesses on a range of topics including the economy, their financial situation, spending plans, house price expectations and business activity.

By John Kennedy (john.kennedy3@boi.com)

Published: 27 October, 2020

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