Consumer sentiment strengthened in May as tax-cut promises and maturing SSIAs eased fears of job losses, the latest consumer survey reveals.

However, a leading economist and co-author of the survey warned that sentiment could deteriorate once again if tax cuts were not implemented by the next government.

The Irish Intercontinental Bank and ESRI overall index of consumer sentiment rose to 85.7 in May, up from an April reading of 83.0.

April's reading was also up on that of March, when a three-year low was recorded, despite confirmation yesterday that house prices in April were 0.8 per cent down on March levels.

ESRI economist David Duffy said that, compared to most previous months, consumers' views about their current situation weakened marginally, from 98.8 in April to 98.7 in May.

"Some element of the poorer buying climate may be a temporary phenomenon either because consumers await post-election clarity on stamp duty and other matters or because we are now drawing close to summer sales," IIB chief economist Austin Hughes speculated yesterday.

Stronger positive trends in other component indices offset this pattern, however.

Mr Hughes attributed brighter expectations to lower fears of job losses as well as the maturing of SSIAs.

"The readings of the past two months are notably healthier than those of early 2007 when a spate of job-loss announcements led two-thirds of consumers to expect higher unemployment.

"There is little doubt that maturing SSIAs have helped," he added.

Mr Hughes predicted that the European Central Bank (ECB) would implement more than one interest rate increase before the year end.

He added that this could cause a repeat of 2002 when post-election cutbacks caused sentiment to weaken sharply.

Contrasting 2007 and 2002 would deliver "bad news" on interest rates.

"The sharply-weakening trend in sentiment in the wake of election 2002 was arrested by a sequence of ECB interest rate cuts."

He said Government action would be needed to underpin confidence.

He said the government now about to take office needed to be aware that pre-election promises were now an important part of consumers' expectations of their spending power for the coming year.

"A failure to make good on those promises could threaten a significant step-down in both consumer sentiment and spending over the balance of 2007."