Consumer confidence falls as inflationary pressures began to bite

Consumer confidence in Northern Ireland declined in the fourth quarter of 2021 as high inflation weighed more heavily on consumer sentiment, according to new analysis from Danske Bank.

The Danske Bank Northern Ireland Consumer Confidence Index decreased to a reading of 134 in the fourth quarter of 2021, down from 137 in the third quarter of the year, but above the reading of 124 posted in the fourth quarter of 2020.

Compared with the previous quarter, respondents to Danske Bank’s December 2021 survey reported feeling less confident about their current finances, future finances, job security and their expected spending on expensive items.

Danske Bank said that while annual consumer spending is still expected to rise in 2022 as the recovery from the pandemic continues, high inflation and falling confidence levels could influence the rate of spending growth.

Asked what had the largest negative impact on their confidence levels, 25% of respondents pointed to the post-Brexit trading arrangements in NI, closely followed by the 24% of people who said that the impact of higher prices on their household finances adversely impacted them (up from 18% in the previous quarter and 12% in the quarter before that). 12% pointed to coronavirus restrictions as having the most negative impact on them.

When asked what had the largest positive impact on their confidence levels, 40% of those surveyed said the rollout of the coronavirus vaccine programme was the biggest factor, with 11% noting the gradual easing of restrictions as a positive influence.

In the latest survey, 25% of people felt their financial position had improved over the previous 12 months, but 28% felt their finances were in a worse position.

Asked about their future finances, 23% of those surveyed expected their financial position to improve over the next year, compared with 26% who believed their finances would deteriorate.

When it came to job security, 14% of people expected to become more secure in their job, while 10% expected their job security to worsen. In terms of spending, 23% of respondents said they expected to spend more on expensive items over the next year, compared with 29% who anticipated spending less.

Commenting on the latest release of the index, Danske Bank chief economist Conor Lambe said: “The rate of inflation in the UK has been on an upward trajectory for a number of months. In January 2021, the CPI inflation rate was just 0.7%. In December, the month that our survey was conducted, the rate of inflation was 5.4% and it increased again to 5.5% in January 2022.

“The rise in inflation has been brought about by a number of factors including higher energy prices and supply chain disruption contributing to an increase in the price of goods. Looking forward, the rate of price rises is expected to move even higher over the coming months. High inflation erodes households’ purchasing power and our survey shows that inflationary pressures are becoming an increasingly negative driver of consumer confidence levels.”

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