HTTP Error 401.3 - Unauthorized

I am trying to setup a virtual directory on IIS 7 to access a basic html website through localhost.
I get the following error:

HTTP Error 401.3 - Unauthorized

Description: You do not have permission to view this directory or page because of the access control list (ACL) configuration or encryption settings for this resource on the Web server.

Error Code: 0x80070005

Notification: AuthenticateRequest

Module: IIS Web Core

Requested URL: http://localhost:80/automonde/index.htm

Physical Path: C:\Users\Robert\Documents\Graphics\Automonde\automondesite\index.htm

Logon User: Anonymous

Logon Method: Anonymous

Handler: StaticFile Start Free Trial