Britain's dominant services sector grew less than expected in February, but still indicated the economy is picking up after a slump late last year, a survey showed on Monday.

The Markit/CIPS Purchasing Managers' Index (PMI) for services fell to 53.8 from 56.0 in January, which had been a 10-month peak. The latest reading was below forecasts for a dip to 54.9, but stayed well above the 50 mark which separates growth from contraction.

Service firms' confidence about the year ahead hit the highest level in a year, with more than half of respondents showing optimism versus only a 10th who were downbeat. Employment in the sector also ticked up.

The data follows PMI releases showing that growth in UK manufacturing also slowed last month, whereas construction activity grew at the quickest pace in nearly a year.

Combined, the surveys suggested that the economy will expand modestly in the first quarter, provided businesses did not see a further loss in momentum in March, said Chris Williamson, chief economist at survey compiler Markit.

The British Chambers of Commerce said on Monday that Britain will avoid a recession and the Bank of England will not need to inject anymore stimulus, but the recovery will be weak and the government should step up its efforts to boost growth.

The UK economy contracted slightly in the final three months of 2011, largely due to a slump in investment at a time when turmoil in the euro zone was at its most disruptive, while service firms' output was unchanged on the quarter.

The PMI surveys support the Bank of England's prediction that the country faces a bumpy road to recovery.

Continued growth will add to analysts' expectations that the central bank will not inject any more stimulus into an economy that is moving out of the danger zone. Most economists expect the central bank to keep the target for its asset purchases unchanged at 325 billion pounds at its policy meeting this week.

Increased activity in the services sector in February was due partly to discounting, although growth in new business still slowed, while preparations for the London Olympics also boosted trade, Markit said. Financial intermediation saw the biggest rise in business.

Profit margins were being squeezed, however, as the prices companies charged fell at the fastest pace since November 2009 while input costs continued to rise, albeit at the slowest pace in 1-1/2 years.(Reporting by Olesya Dmitracova; Editing by Susan Fenton)