Irish consumer sentiment recorded its highest reading in nearly seven years last month, according to the latest index from KBC Bank Ireland and the ESRI.

Sentiment rose from 84.6 in January to 85.5 last month, marking the third successive gain in three months. Although the monthly change was slight, it makes the February reading the strongest since May 2007.

The three-month moving average increased for the tenth consecutive month to 83.3, from 78.5 in January.

The rise in sentiment suggests consumers are increasingly confident that the Irish economy is emerging from the difficulties of the past few years. the figures confirm however, that while there has been a clear improvement in confidence there is a risk of modest correction over the next few months.

“We don’t think a dramatic pick-up in spending is already underway even if the trend should improve through the coming year. This means there is a risk that the buying climate element of the survey weakens significantly in the near future. The speed and scale of any pull-back may give some clues as to whether Irish consumers are starting to plan for a notably healthier economic and financial future,” the index reported.

According to the index, 51 per cent of consumers expect the economy to improve further in the next twelve months but the number expecting a weakening edged up from 19 per cent to 21 per cent last month.

In addition, 28 per cent of consumers see the jobs market weakening in the next twelve months while 36 per cent predict an improvement, down from 40 per cent a month in January.

"We think the February reading should be seen as consolidating recent gains in the sentiment index. It suggests that consumers are increasingly confident that the Irish economy and the outlook for jobs are improving and, at the margin, pressure on household finances may be easing slightly. However, consumers are likely to need clearer evidence that things will get notably better for their households before they are willing to scale up their spending," said Austin Hughes, economist with KBC Bank Ireland.