Bank of Ireland has downgraded its projections for Irish GDP growth amid the “enormous” global risks brought about by the US and Israel’s war on Iran.

Inflation is to stay above 3 per cent throughout the year, with lower growth expected. While the Iran war puts an “unwelcome squeeze” on household income, the bank doesn’t believe Ireland is heading for recession.

In its latest quarterly bulletin, the bank’s April economic forecast predicts GPD growth of 1.6% – a fall from the 2.8% it had previously forecast as the international conflict enters its third month.

“This downgrade reflects the unwinding of temporary factors that boosted exports in 2025 (front-running of US tariffs) but also the recent uncertainty posed by events in the Middle East,” it said.

The bank said that inflation would average 3.3 per cent this year, limiting consumer spending to a 1.8% expansion this year. It comes amid a 63 per cent rise in the price of home-heating oil.

Conall Mac Coille, the bank’s group chief economist, said: “While the recent rise in oil and energy prices towards $100 per barrel  represents an unwelcome squeeze on household real incomes and consumer spending, the Irish economy is expected to show the same resilience demonstrated during Brexit, the Covid pandemic, and the energy shock that followed Russia’s invasion of Ukraine.

“There are enormous risks – 20% of global oil supply remains cut off,” he added.

The forecast said that government action on excise duties has lowered the impact of increased petrol and diesel prices on inflation, but that the expiry on recent cuts could increase inflation in August.

Bank of Ireland products that the Government has the means to offer further support, noting the State’s predicted surplus of €9 billion, as well as plans to push up public spending this year.

Separately, the latest consumer sentiment index shows that Irish consumer sentiment dropped again in April, with a negative view of economic and financial prospects expressed.

Some 54% of consumers said that higher energy prices would have a significant impact on their household finances, with consumers already struggling with bills 2.5 times more likely to give that response than those managing to make ends meet.

Around 30% said that higher energy prices would have a “significant” impact on them.