The prospect of rising interest rates took its toll on consumer confidence in February, the latest consumer survey has found.
The consumer sentiment index, produced by IIB Bank and the Economic and Social Research Institute (ESRI), dropped by over three points last month.
The February reading of 102.9 implies the index lost half of the gains made during the January sales season.
The figure reflected a forecast by ESRI economist David Duffy that consumer expectations would moderate in February.
"The weaker February reading reflects a more cautious assessment of their household financial situation by Irish consumers. In part, this reflects an understandable retracement in spending plans once post-Christmas sales had ended," IIB chief economist Austin Hughes said yesterday on the release of the figures.
Mr Hughes added that consumers were more downbeat in spite of holding a positive view on the economy.
"The February consumer sentiment survey once again points to a disjoint between a broadly encouraging view of 'macro' developments in the economy as a whole and a more cautious judgment of what this might mean for each household's finances," he said.
He added that the "disappointing" reading on household finances could reflect a number of unwelcome developments such as the reality of higher monthly loan repayments and the threat of an imminent further interest rate increase.
However, Mr Hughes expressed confidence that the consumer outlook would recover in coming months. "We still feel Irish consumer sentiment is on an improving trend and we expect that confidence and spending will strengthen through 2006. That said, the message coming from the February sentiment reading is that a stronger trend cannot be taken for granted."
Rossa White of Davy Stockbrokers said funds from SSIAs would help offset any negative impact on consumer spending caused by rising interest rates and high debt levels.
The European Central Bank (ECB) is widely expected to increase interest rates at a meeting of its governing council tomorrow.
Total lending to the private sector increased in January to reach a record level of €262 billion, ECB statistics revealed yesterday.
