New orders boost services sector

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Activity in the UK's services sector rebounded last month but confidence has still fallen to levels normally seen in times of crisis, it emerged today.

The Markit/CIPS Purchasing Managers Index rose to 52.9 in September from an eight-month low of 51.1 in August - when UK riots probably impacted the result - and well above the 50 mark which indicates that the sector is growing.

The improvement was driven by new orders and stronger demand, though Markit added that the third quarter's reading of 53.1 was the lowest so far in 2011.

However, business confidence fell to its lowest since March 2009 due to concerns over financial turbulence and public and private investment and is now running at levels "only ever seen before in periods of crisis", Markit chief economist Chris Williamson said.

Britain's services sector accounts for more 75% of the economy.

Mr Williamson said September's uplift was "surprise" but welcome news, though he added that August had been disrupted by the riots.

Howard Archer, chief UK economist at IHS Global Insight, said September's reading was well above forecasts and would be a boost to the UK economy's third quarter growth prospects as well as the start of the fourth quarter.

He cautioned, however, that growth remains well below past norms and the fall in confidence highlights the worrying domestic and global situation facing the UK economy.

David Noble, chief executive at CIPS, added that the figures were "a small ray of sunshine" but the sector is still on a weak footing.

Input costs rose over the month due to higher energy, fuel and supplier prices, while backlogs of work outstanding fell further with levels of employment broadly unchanged.