Consumer sentiment recovered from a seven-year low last month, according to a survey by the ESRI and IIB Bank. The consumer sentiment index rose to 63 from from 60.9 in July while the expectations index climbed to 49.6 from 46.7 for the previous month. The index of current economic conditions rose marginally to 83.0 from 82.0.

More than half (54 per cent) of respondents expect their personal finances to hold steady over the next 12 months, with 28 per cent anticipating a deterioration and 18 per cent looking forward to an improvement.

IIB chief economist Mr Austin Hughes said the improvement in part reflected a correction from July's substantial decline but also offered evidence that the economy might have reached its lowest point and is now primed for recovery.

He said: "Encouraging signs of a recovery in the US have probably eased concerns among Irish consumers that the international backdrop may not be as threatening to Irish economic prospects as previously feared."

The improvement in personal finances reported by households in August was due to a combination of factors including lower interest rates, falling inflation and a continued buoyancy in the housing market.

Mr Hughes said: "The overall rise has been driven by an improvement in consumer expectations. In particular, consumers have become more positive about the general outlook and their personal finances over the next 12 months.

"At the same time there has also been a marginal improvement in consumer perceptions of the outlook for the labour market."

July's plunge reflected mounting anxiety over a spate of job losses. But last month's rebound suggests that many households felt their earlier gloominess may have been an overreaction, in particular to the Iraq war.

This growing consumer confidence offered a "glimmer of hope that could become brighter if global economic conditions continue to improve", said Mr Hughes.