Consumer sentiment is at its highest point in nearly five years as people show less pessimism about their future financial situation.

The August Consumer Sentiment Index, which is compiled by KBC Bank Ireland and the ESRI, was at 70, marking the third consecutive rise for the survey. The figure also compared to 55.8 a year ago.

This rise was despite a weakening in consumers’ current financial situation, though fewer people expected their situation to worsen further over the next 12 months.

There was also a less negative outlook over the economy and employment prospects in the year ahead.

The KBC Bank Ireland/ESRI Consumer Sentiment Index for August showed a third consecutive increase, with the Index reaching 70.0 in August from 67.7 in July. This compares to a reading in August of last year of 55.8. The 3-month moving average also increased, up to 66.7 from 63.7 in July.

Commenting on the results Eddie Casey, ESRI, said: “The latest Consumer Sentiment Index suggests that the gradually improving trend visible in sentiment since early this year has continued into August.”

However Mr Casey pointed out that the index remains below average despite the improvement.

Austin Hughes of KBC Bank Ireland said the improved sentiment likely owes a lot to the possibility of further falls in ECB interest rates, and the prospect that they will remain low for some time.

“It remains the case that Irish consumers are cash-strapped and cautious but as they become less fearful, there should be a gradual stabilisation in their spending even if there seems little prospect of a rapid pick-up in spending anytime soon."

Mr Hughes also cautioned that the improved sentiment was fragile and could be jeopardised as speculation around Budget 2013 increases.