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INCOMES are expected to grow this year and will rise faster than inflation, according to Bank of Ireland.

Consumer spending should grow by 3% as wage growth beats inflation, which the bank says should slow to 2.5%, close to the European Central Bank’s 2% target.

Bank of Ireland’s latest Economic Outlook is also forecasting modest GDP growth of 1.5% this year, but accelerating to 4% next year.

The bank’s chief economist, Conall Mac Coille, said yesterday: ‘The impact of the fall in GDP last year will reverberate though 2024 and hold back growth to 1.5%. However, with inflation falling back and real incomes growing, consumer spending should continue to expand while continued house building should underpin domestic investment growth, with both contributing to a solid rise of 2.3% in modified demand.’

Core inflation – which excludes energy costs – is now running higher at 5.9% higher than headline inflation, with reductions in energy prices helping to keep inflation down rather than up.

Last year saw the economy go into reverse but the bank says it was a recession ‘in name only’ and did not affect personal finances. Mr Mac Coille added: ‘We saw a poor GDP performance in 2023 where the economy contracted by 1.9%, driven mainly by specific issues in the multinational export sector; however, this does not reflect a long term trend.

‘In reality, it is a recession in name only as by most other measures, the economy continued a steady rebound last year.

‘We expect solid activity in the indigenous sector where expansions in employment and domestic demand in 2023 should continue in 2024.’ The bank expects consumer spending to increase by 2.9% as wage growth outpaces inflation, which it sees slowing to 2.5%, with jobs growth of 1.5% sustaining spending.

Spending growth is backed by wage growth, expected to be 4.2%, as skills and labour shortages help drive up wages.

However, one uncertainty is the timing and pace of further energy price cuts.

House price inflation is likely to stay in low single-digit territory this year due to lack of supply of new homes. MyHome.ie’s asking price inflation has dropped to 4%.

New house completions are expected to hit 34,000 this year, but the figure is still well short of the 40,000-50,000 required to meet demand that will support prices.

Bank of Ireland is also forecasting employment growth will slow from 3.6% in 2023 to around 1.5% this year and next. The report says: ‘Unemployment remains at low levels, though it has picked up of late. The seasonally adjusted rate stood at 4.5% in January 2024, up from a low of 4% in February of last year.

‘This increase has been driven by growth in the labour force.’