The UK service sector grew at its fastest pace for two years, according to the latest figures from the CIPS/Markit index.

The index recorded a reading of 54.1 in August, while new orders increased for a third time in four months, with the rate of growth only slightly lower than July’s 16-month peak.

However, UK service providers recorded a 16th consecutive monthly decline in staffing levels, although the rate of contraction eased for a second consecutive month, while business expectations also improved during August, reaching the highest level for two years.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, says: “We’ve really seen a strong turnaround in the UK services sector in recent months. The sector has bounced back from its low earlier in the year and in August grew at its fastest pace in almost two years. This is particularly good news as the survey covers almost 40% of the UK economy.

“Nonetheless, 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.

“Although firms are still culling jobs, August saw the slowest decline in employment in almost a year. And on the back of improved market conditions, business confidence hit a two-year high.”