The service sector continued to recover in July hitting a 17-month high, according to the CIPS/Markit Business Activity Index.

The index rose for a seventh time in eight months to reach 53.2.

Business expectations were slightly lower than June’s 20-month peak but higher than earlier in the year.

However, companies continued to shed staff in July through a combination of redundancies and the non-replacement of leavers.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, says: “The services sector is rebounding at an unprecedented rate after what has arguably been the most savage economic downturn since the end of World War II. After hitting an all time low in November, July saw the sector make marked gains with new business activity rising for the third month running and at the sharpest rate in almost a year-and-a-half. Increasing levels of referrals, more marketing and higher levels of new business have helped.

“Nonetheless, the scars inflicted on the sector by the troubled economy will take time to fade as companies are still cautious about committing to substantial spending. We’re still seeing companies reduce their prices and the job landscape remains difficult with wage pressures blunted as overall staff levels continue to fall steeply. This is a pattern we’re likely to see continue until the end of the year and employment will, from a longer term perspective, recover at a slower rate than business activity.”