Irish businesses and households confident despite Brexit risks

Irish businesses and households remain confident about their economic prospects despite the challenges posed by the UK’s decision to exit the European Union, two new surveys published today show. However, while Brexit may not have been “apocalyptic” so far, it is still an area of concern.

Business sentiment was effectively unchanged in the three months to late October, the KBC Bank/Chartered Accountants Ireland (CAI) business sentiment index found. This follows a sharp pull-back in Irish business confidence in the summer survey.

Meanwhile, the Bank of Ireland Economic Pulse was 94.5 in October, up 4.1 points from September, buoyed by recovering business sentiment.

According to Bank of Ireland, the retail sector registered a strong pick-up to 89.7 (+10.8 points) in October, while the services (+5.5) and construction (+3.0) sectors also showed favourable increases, although industry fell by 2.4 points.

Pointing out that the index has now recovered about a third of the ground it lost in July following the UK’s decision to leave the EU, Bank of Ireland group chief economist Dr Loretta O’Sullivan said the survey findings indicate the majority of firms remain ambitious, with two in three looking to expand in the next one to three years.

“On the wage front, 40 per cent of firms in industry, 38 per cent in services, 34 per cent in construction and 28 per cent in retail are planning on increasing basic pay in the coming 12 months, to the tune of 2 per cent to 4 per cent in the main. Overall a solid increase in business sentiment is a welcome feature of the October data,” she said.

Potential risks

However, both surveys pointed to potential risks on the horizon in the form of Brexit.

According to KBC Bank/Chartered Accountants, the survey pointed to a clear, if contained, slowdown in the pace of increase in activity and employment. This was particularly evident among those selling consumer goods and services, and could be interpreted as highlighting the pervasive nature across Irish economic sectors of the difficulties posed by Brexit.

“The broadly stable business sentiment index reading may be a little misleading in that the details of the survey suggest notable but broadly offsetting changes in the business climate affecting Irish based firms; growth in activity and hiring has clearly moderated of late and while Brexit is a major concern, companies are also signalling some relief that the immediate fallout of the UK vote has not been as severe as some of the more apocalyptic predictions had envisaged,” CAI chief executive Pat Costello said.

Of related concern to Irish businesses is the continued weakening of sterling. Bank of Ireland says it expects to see sterling trading in a range centred on 90p over the coming months.

“As a small, open economy, Ireland is vulnerable to adverse movements in exchange rates and it is clear that the weak pound is starting to bite. Against this background, an eye to the cost base and a focus on non-price factors impacting competitiveness could help mitigate some of the pain,” Ms O’Sullivan said.

On housing, Bank of Ireland’s Housing Pulse rose to a 2016 high of 107.4 in October (+2.3 from September). The figures show that almost one in five 25-44-year-olds now plan on buying or building a property in the coming year, up from one in 10 in July.

“Around one in five renters are also looking to become home-owners, which is not surprising given the difficulties in the rental market at present,” Ms O’Sullivan said.