Consumer sentiment registered at a seven-year high in July, according to the latest monitor from KBC Bank Ireland and the ESRI.

The Consumer Sentiment Index rose to 89.4 in July, up from 81.1 in June.

The sharp drop seen in the survey in May has now been more than fully reversed, according to the report authors.

The July reading is the strongest since January 2007 and now stands slightly above the long term average of 85.1.

The improvement in the mood of Irish consumers is at odds with the results of consumer confidence measures elsewhere.

"The sharp rise in sentiment last month continues the notably more volatile pattern seen of late as consumers struggle to make sense of strongly conflicting signals on the health of the recovery and what that might mean for their personal finances," Austin Hughes, chief economist with KBC Bank Ireland said.

"The confusion felt by consumers and signalled by 'choppy' movements in the sentiment index seems to be the result of a disconnect between increasingly upbeat commentary on the current state of the Irish economy and broadly based and continuing pressures on their household finances," he added. 

"For many, the recovery they are hearing about is not one they are seeing in their own circumstances."

Despite some signals that the government would not introduce a full €2 billion adjustment in the upcoming budget, on the back of strong growth data and better-than-expected exchequer returns, consumers on the whole still feel that their personal finances would remain under pressure in the year ahead. 

As a result, and in spite of a marginal improvement in July, three times as many consumers expect a further weakening of their household finances in the next twelve months as those that anticipate an improvement.

"To support a still tentative and narrowly based upturn in domestic demand, the key task for Budget 2015 is to strike a balance between achieving promised goals for the Public finances and supporting expectations of a sustainable and more broadly based improvement in living standards," Austin Hughes said. 

"In the next few months, the behaviour of the consumer sentiment survey may shed some light as to how optimistic, pessimistic or simply confused Irish consumers are in this regard," he concluded.