Bank of Ireland Savings and Investment Index shows Inflation continues to dominate sentiment

• Appetite for savings dips again in Q4
• Greater level of optimism about investing in 2023

Bank of Ireland’s Savings and Investment Index in Q4 showed that inflation is the top concern amongst the Irish public. One in four cited inflation as their biggest concern (26%, down from 29% in Q3) while the war in Ukraine was cited by one in five (20% up from 17% in Q3).

Table 1: Top concerns amongst Irish consumers

Source: Bank of Ireland/IPSOS December ‘22

Kevin Quinn, Chief Investment Strategist, Bank of Ireland said: “For the second survey in a row, the cost of living crisis is top of the concerns for Irish households and consumers. Given the pace of price rises in recent months this is very understandable. However, it also stands in stark contrast to how the world’s markets now view this problem. Right now, the view from markets is that inflation has already turned down and we will see significantly lower inflation levels in the year ahead. Even since early November, the expectation in markets has dropped very considerably and that is yet to feed through to the consumer. That there has been an increase in concerns about a global recession is interesting as that’s where the market is increasingly focussed.”

Appetite for savings dips again

The desire to save remained at a low ebb in Q4. When asked if it’s a good time to save, the sub-index is now 28 points below its May 2020 pandemic high (89 vs. 117), however, 36% think it is a good time or a very good time to save. 58% of people stated that they were either saving nowhere near what they should be or a bit less than they should be. That’s a 6-percentage point rise on the responses in November 2021, and the second quarter in a row that this is at pre-pandemic levels. More than one in three (35%) feel that they are ‘about where I should be’ in relation to their saving.

“The continued subdued desire to save is probably heavily influenced by the cost of living crisis currently being experienced by Irish households. Day to day expenditures have risen so capacity to save has naturally fallen back somewhat. There is clearly a recognition amongst Irish consumers of the value of regular savings, but the cost of living crisis being faced at present its putting this down the priority list” said Kevin Quinn.

Might investor pessimism be turning?

It has been a difficult year for investors with both equities and in particular bonds seeing a downturn. 43% of respondents saw the current environment as a poor time to invest in the Q4 (November) survey, as was the case in August. However, when asked to look forward to six months’ time, the mood changes very considerably. Just one in three (32%) see six months’ time as a bad time to invest – an improvement of 5 percentage points since the Q3 survey in August.

“Our survey indicates a greater level of optimism about investing in 2023 from Irish households, following a difficult 2022 with losses in both equities and bonds. What’s more, the market has tried to stage a recovery on three occasions in the past year and each time this has reversed. Markets are already pricing in a mild recession in both the US and EU and while we believe that will keep markets volatile at the start of the year, there are also reasons to be more optimistic about the longer-term outlook.

“A mild recession, an end to high rates of inflation which in turn could change the direction of interest rates, are all ingredients that could deliver a much more positive outcome for the year ahead. We have already begun to see some of the evidence for this with better than expected inflation in both the EU and US and perhaps some investors are already picking up on this. For the longer-term investor, when we look out over a decade or so, we have revised our long-term returns forecasts upwards to reflect this” said Kevin Quinn.

Concerns continue to mount about how comfortable retirement will be

During the height of Covid, a surprise result of the survey was how increasingly comfortable people believed they would be in retirement. In May ‘20, only one in four (24%) were concerned that they would find retirement very difficult or quite difficult. In November ’22 that number is one in three (35%). And 41% of people surveyed indicated they are either ‘somewhat or completely unprepared’ financially for retirement.

Bernard Walsh, Head of Pensions & Investments, Bank of Ireland commented: “It’s clear that the onslaught of inflation has led a lot of people to think more about how they will fare in retirement and how well prepared they are financially. The most recent results suggest that the cost of living crisis is focussing a lot of people on how they will fare in their later years and concerns are clearly rising”.