RTTNews - An indicator measuring UK's services activity expanded for the fourth consecutive month in August, and was also the highest rate since September 2007, the latest survey from Markit Economics and the Chartered Institute of Purchasing & Supply said Thursday.

The seasonally adjusted Business Activity Index stood at a near two-year high of 54.1, remaining well above the threshold level of 50 that separates expansion from contraction. Economists expected the index to come in at 54.

Higher activity levels were supported by new incoming contracts along with the existing work, with the backlogs of work falling at a steep and accelerated rate. New orders were up for the third time in four months, with the growth rate only slightly falling short of July's 16-month high. Backlog of work declined for the 23rd consecutive month and at the fastest pace since March.

Employment continued to fall for the 16th consecutive month and although the rate of contraction eased for the second consecutive month to its slowest pace since September last year, it remained historically high.

Input prices continued to rise with the corresponding inflation hitting a nine-month high, mainly due to higher fuel prices. However, average output charges declined for the 10th consecutive month. Meanwhile, business confidence touched a two-year high.

Commenting on the latest data, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply said the services sector has seen a strong turnaround in recent months, having bounced from its low earlier in the year, and growing at the fastest pace in almost two years. This is particularly good news as the survey covers almost 40% of the UK economy, he said.

At the same time Noble pointed out the market is still somewhat fragile and purchasing managers said growth was largely driven by reducing backlogs and continued discounting was needed to boost sales in a bid to beat tough competition.

Moreover, Paul Smith Senior Economist at Markit Economics said, The latest services data leave the UK economy on track for growth in Q3, although there will remain doubts over the sustainability of expansion.

With unemployment set to continue to rise over the coming months, and the support from monetary and fiscal stimulus fading, a muted recovery of the UK economy remains the most likely scenario at the present time, Smith added.

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