Two in three households are planning to up their spending on holidays this year or spend more, and firms in the accommodation and food sectors are positive about their prospects for the season. That's according to Bank of Ireland’s monthly Economic Pulse index, which shows business sentiment at a 23-month high.

The index combines the results of the consumer and business pulses and was up 2.7 on April’s reading and 5.1 on a year ago, reaching 97.6. Households were more upbeat this month, as were businesses.

Chief economist Dr Loretta O’Sullivan said: “The Economic Pulse rose in May. This time last year, we saw a divergence starting to emerge between households and firms. Consumer confidence forged ahead in the following months but business sentiment remained subdued. 

“It’s 12 months on, and it looks like less a case of ‘mind the gap’ and more a case of ‘closing the gap’. The index has rallied this year and is currently at a 23-month high. Brexit uncertainty and geopolitical tensions aside, the Irish and global economies are doing well, which has helped things, and the gap between consumer and business sentiment now looks to be narrowing.”

At 99.2 this month, the Consumer Pulse was up 1.4 on last month and 5.1 higher than a year ago. Households were a little more upbeat about the economic situation, and took a more positive view of their existing financial position.

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On the buying front, 36% considered May a good time to purchase big ticket items like furniture and electrical goods, while just over a quarter expect to increase the amount they spend in-store in the next year and one in five expects to ramp up spending online.

The Business Pulse stands at 97.2, up 3.0 on April’s reading and 5.1 higher than last year. Helped by improving order books, the industry, services and construction pulses all gained ground this month, while the retail pulse was little changed.

The May data also point to growing inflationary pressures, related in part to rising oil prices and recent exchange rate developments. About 52% of firms in industry and 40% in services reported an increase in non-labour input costs over the past three months, well up on the April responses of 44% and 36% respectively. Most businesses still expect to keep their selling prices unchanged in the period ahead, though.

The Housing Pulse rose to 116.6, from 116.1 last month. Supply is failing to keep pace with demand, putting upward pressure on house prices and fuelling expectations of further gains. This is the case throughout the country, with almost nine in ten households in Dublin, around four in five in the Rest of Leinster and Munster and two in three in Connacht/Ulster expecting prices to increase in the next 12 months.

The survey results also show that rent expectations were in firm positive territory in all regions in May. Four in ten (38%) are concerned about rising house prices with the same proportion (42%) worried about the cost of renting.

O’Sullivan pointed out that CSO figures also indicate that house prices are growing strongly: “The latest data from the CSO show house price inflation is currently in double digit territory. Prices were up 12.1% in the year to March in Dublin and rose by 13.4% elsewhere. Our research finds that most households in the capital and around the country are expecting further price increases in the coming year.”