Consumer sentiment bounced back to a seven-year high last month driven by improving perceptions about Ireland’s economic recovery and continuing recovery in property prices.

The latest KBC Bank/ESRI Consumer Sentiment Index rose to 89.4 in July, up from 81.1 the previous month.

Sentiment had taken an unexpected nosedive in May during the time of the European and local elections.

However, the July reading was the strongest since January 2007 and fully reverses the drop witnessed in May.

"The solid increase in the sentiment index in July suggests confidence among Irish consumers is on a gradually improving trend," KBC economist Austin Hughes said.

Nonetheless, he warned “the choppy nature of recent readings emphasised that the average consumer remained uncertain about the path the economy is on and is even more unsure as to whether any emerging upswing will deliver any significant improvement in their household finances.”

The rise in sentiment here was at odds with confidence indicators abroad, most notably in the US and Europe.

In the euro area, there was a weakening of confidence reflecting ongoing concerns about the uneven nature of recovery and the deteriorating situation in Ukraine.

In light of the weak readings elsewhere, KBC suggested domestic developments, linked encouraging reports on the Irish economy and developments in the jobs and property markets, may explain the jump in Irish sentiment.

The survey noted Irish consumers’ views on the economy last month were at their most positive since December 2006, and differed significantly from the previous month, with positive views increasing from 43 per cent of respondents to 54 per cent whereas negative views dropped from 25 per cent to 13 per cent.

In contrast to positive responses about the wider economy, there continues to be a majority of negative responses to questions on household finances.

The survey noted most recent finance-related discussion in the media has centred on the likely scale of adjustment needed in the upcoming Budget.

“ Although strong growth data and better than envisaged exchequer returns through the July survey period hinted that less austerity might be necessary, recommendations from the Fiscal council, the IMF and the EU commission all argued for measures totalling €2 billion or more.”

“In these circumstances, it is not entirely surprising that consumers felt that their personal finances would remain under pressure in the year ahead,” it said.