The UK's dominant service sector expanded in September but undershot analysts forecasts.

Markit's service sector Purchasing Managers Index registered 52.2 - anything above 50 means the sector is expanding. Analysts had pencilled in a reading of 53.

September's figure was down from August's 53.7, but still clocked up its twenty-first successive month of growth.

A solid increase in volumes of incoming new business supported the latest rise in activity but firms also recorded a net fall in employment for the first time in ten months.

Markit's research showed companies were adopting a cautious attitude when it came to employment decisions, generally choosing not to replace leavers.

Operating expenses continued to rise in September, with the rate of inflation little changed.

A number of companies continued to blame higher fuel and energy costs, while some commented on an increase in food prices.

These rises hit the hotels, restaurants and catering sector hardest, as it recorded the steepest input price rises.

However, UK service providers remained optimistic overall of a rise in activity from present levels in 12 months' time.

Confidence rose to a four-month high, with many respondents anticipating an improvement in the performance of the UK economy.

Chris Williamson, Markit's Chief Economist, said the September service sector PMI added to evidence to suggest that the UK economy barely expanded in the third quarter.

"GDP is likely to have grown by perhaps 0.1% as modest growth of services activity was offset by a slight drop in construction sector output and a steeper decline in manufacturing, according to the PMIs."

This compares with a prediction from the British Chambers of Commerce, which forecast growth of 0.5% in the third quarter.

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