Consumer sentiment weakened in May, reflecting greater caution among individuals given the weakening economic climate and fears about job losses, writes Siobhán Creaton, Finance Correspondent.

Research by IIB Bank in association with the ESRI shows the Consumer Sentiment Index was at 66.5 in May compared to 68.4 in April. In May 2002 the figure was 92.4.

The index reflects how consumers view prospects over the next 12 months and is also a measure of current economic conditions.

It is primarily an indication of consumers' perceptions of their future financial situation, the economic outlook and employment expectations.

IIB economist Mr Austin Hughes said that while the headline figure was down, the figures were encouraging and in some part reflected the fact that consumers' worst fears had not been realised.

"There are indications of some softening of individuals' personal financial circumstances and may also reflect disappointment at the ECB's failure to cut interest rates this month," he said.

The index value for May 2003 declined to 55.7, compared with 56.9 in April, as the environment for individuals to make major purchases disimproved, according to IIB.

The index showed a large increase in April, reaching the highest level since its inception. Mr Hughes believes lower interest rates, signs that the rate of inflation is softening and that the outlook for employment remains relatively stable will underpin confidence levels in the months ahead.

"People have been preparing for a slowdown over the last couple of years.

"They have been adjusting and doing that in a relatively orderly fashion," according to Mr Hughes.

He is forecasting that growth in consumer spending will be of the order of 2 per cent this year.