Firms remain upbeat despite slowdown in services sector

Growth in Britain's dominant services sector slowed last month although firms were more optimistic about the outlook for the coming year, a report showed yesterday.

A snapshot survey of firms in the sector that makes up three-quarters of the economy showed activity slipped from December's 20-month high.

But analysts said the report painted a broadly upbeat picture for the economy and added to the consensus view that the Bank of England would leave interest rates unchanged next week.

"The big picture is essentially unaltered," Ross Walker, a UK economist at Royal Bank of Scotland, said. "It's a solid start to 2006 for the UK service sector."

The Chartered Institute of Purchasing and Supply's index eased to 57 in January from December's 57.9 and below the 57.5 that City analysts had expected.

Most of the survey's sub-indices fell from highs hit in December but remained well above 50, the mark that separates growth from contraction.

Firms were overwhelmingly optimistic about their prospects, with 57 per cent saying they expected business to increase over the coming 12 months, boosted by stronger UK and global economic growth.

Roy Ayliffe, the director of professional practice at Cips, said: "Managers saw the new year open with a continuation of the robust operating conditions they enjoyed last year. A healthy economic environment led to the hiring of more staff as clients were reportedly more willing to sign off on new projects."

To support higher overall workloads, UK service providers recruited staff for the 30th successive month.

In response to an upturn in costs - and to try to protect margins - an increased number of respondents opted to raisetheir charges in January, the Cipsstudy said.

A separate survey of the 12-member eurozone showed growth accelerated to a two-year high, boosted by a strong performance from Germany and rising business confidence. But in the US activity declined.