The UK's dominant service sector showed solid growth in August as firms won an increasing amount of business. Thus, the Purchasing Managers Index registered 53.7, up from July's figure of 51 - anything over 50 denotes growth and versus August's reading of 51.

August's number means the service sector has now registered twenty consecutive months of growth. The latest statistic was also the best reading since March, according to Markit, which compiles the figures.

The consensus estimate had been for a reading of 51.1.

The increase in activity was attributed to a combination of new contract wins, marketing and, in some instances, better weather.

New business volumes (the sub-index remained at 52.3) also continued to rise as a number of companies were able to convert pipeline business into hard contracts.

The figures were due to be released on Wednesday but were mistakenly published by the Reuters news agency.

The index showed companies benefited from a further rise in incoming new business and continued to make inroads into unfinished work (rose to 48 from 47.5).

Capacity was further increased by a significant proportion of service providers being positive about the outlook for their firms. However, amid evidence that the operating environment remains challenging, sales and activity continued to grow at below par rates.

Confidence was also again well below its historical trend level.

Another worrying sign was the return to rising fuel costs and an increase in prices paid for energy, food and supplier goods in general.

This led to a marked increase in overall operating costs in August; the gauge for input prices increased to 56.4 (from 54.9) .

With input price inflation accelerating to a four-month high, a slight increase in output charges (to 50.5 from 48.8) was recorded - the first inflation recorded since April.

Economists' reactions

Chris Williamson, Chief Economist at Markit, said the survey data added to hopes that the economy would pull out of recession following the 0.5% contraction seen in the second quarter.

"The wild card remains construction, for which the survey data indicated falling activity in August, which could subdue any recovery in the wider economy," he said.

"The big question is whether the expansion can be sustained.

"It is concerning that the upturn in activity was not matched by a similar rise in hiring, with employment in the service sector instead growing at the slowest pace since February, and business expectations for the year ahead remaining very low by historical standards," he added.

For their part economists at Barclays are of the following opinion: "The relatively robust services survey follows the surprisingly strong manufacturing survey published on Monday; together, the surveys suggest that the deterioration in the economic outlook seen in recent months may have been arrested.

"Nevertheless, even if August's elevated readings were maintained in September, this would imply underlying GDP growth of -0.1% quarter-on-quarter for Q3. This translates into 0.4% overall growth, taking into account the unwind of Jubilee-related weakness in Q2, versus our current forecast of 0.5% quarter-on-quarter. Hence, even with the positive news on the services PMI, risks to our current GDP forecast have a small downside skew."

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