A new survey shows that consumer sentiment fell in November while business sentiment rose as the economy benefited from the removal of Covid-related restrictions and strong employment growth this year, while the war in Ukraine caused a big jump in inflation.
Bank of Ireland's latest Economic pulse showed a reading of 67.2 in November.
The index, which combines the results of the Consumer and Business Pulses, was up 6.7 on last month but 16 lower than a year ago.
Bank of Ireland said that consumers were uneasy about the jobs' outlook while the cost of living squeeze putting a dent in Christmas spending plans, but the Business Pulse clawed back some of the ground it lost last month.
The Business Pulse came in at 73 in November, up 8.8 on October but 12.3 lower than a year ago.
Bank of Ireland noted that while the Industry Pulse slipped again this month, the Services and Construction Pulses advanced.
It said the Retail Pulse was a little firmer as well, but the survey findings point to a more muted Christmas trading period than usual with two thirds of retailers expecting their turnover to be the same or higher than last year compared to 85% in the pre-pandemic era.
With a reading of 44.3 in November, the Consumer Pulse was down 1.5 on October's reading and 30.9 lower than a year ago.
Bank of Ireland said that households were more circumspect about prospects for the economy and the labour market this month, with 56% now expecting unemployment to increase over the next year, up from 49% last month.
The survey results also indicate that Christmas shopping plans have been reined in.
Three in five consumers said they intend spending the same or more on presents this year compared with last, but this is down from three in four in 2021.
Meanwhile, the Housing Pulse stood at 85.2 this month, down 2.1 on last month and 31.3 lower than a year ago.
Noting the Central Bank's recently announced targeted relaxation of its mortgage rules, Bank of Ireland said that all other things being equal, the new rules should support the housing market in the months ahead.
"The changes are occurring in an environment of rising interest rates though and against this backdrop, households remain cautious in their assessment of price developments. While over half think house prices will increase over the coming year, almost one in five thinks they will fall," the bank added.
Dr Loretta O'Sullivan, Group Chief Economist for Bank of Ireland, said that while the economy has been benefiting from the removal of pandemic-related restrictions and strong employment growth this year, the war in Ukraine has had a knock-on effect to inflation.
"This is a headwind for exporting sectors including ICT, and the news of layoffs in some high profile tech companies may have unsettled households this month," she said.
"However, November's research also finds that 32% of firms expect to spend more on investment in 2023 compared with 2022. Though down from 38% a year ago, this is nonetheless a solid print, and with Government supports helping households to mitigate increased energy and other costs, our new forecasts still have GDP growing by 4% next year," the economist added.
