Consumer sentiment rises sharply after dull October

Consumer sentiment jumped this month following a drop in petrol prices, the promise of a generous Budget and the removal of the Groceries Order, according to a new survey.

However, consumers are still cautious about spending ahead of the peak Christmas season. The IIB Bank/Economic and Social Research Institute (ESRI) consumer sentiment index, based on interviews with 1,100 people, rose sharply in November to 94, its highest point since July, from a reading of 85 in October.

Austin Hughes, chief economist at IIB Bank, said November was notable for the absence of negative shocks to the economy after major job losses, concerns about "Rip-off Republic" and surging energy costs created an autumn of discontent.

But he added that while the November increase was encouraging, the reading was slightly below the year-to-date and long-term averages for the index going back to 1996.

Consumers' assessment of the buying climate only improved slightly on October. Mr Hughes said the value of spending growth could be expected to remain at its current pace of around 7.5 per cent in the run-up to Christmas.

The Christmas season depends on whether consumer sentiment is more influenced by Jean-Claude Trichet, president of the European Central Bank (ECB), or Brian Cowen, Mr Hughes said.

The ECB is expected to raise interest rates later this week, which will damage consumer confidence in the economy, he said.

But this should be offset by a generous Budget next week, he added.