The services sector is contracting at its slowest rate for six months, data published today revealed.

The Chartered Institute of Purchasing and Supply and Markit Economics said its index of activity in the services sector, which accounts for three-quarters of the UK economy, hit 45.5 in March.

Anything under 50 represents a slowdown in activity, but the figure was the strongest since September last year, when the collapse of Lehman Brothers, US investment bank, sparked a new and more intense phase of the world economic downturn.

The figure was also much stronger than the 43.5 mark which had been expected in the City.

The data sent sterling higher on foreign exchanges against the US dollar, continuing its strong run from Thursday. The pound was trading at a rate of $1.4823 by mid-morning — compared with a rate of just $1.3746 as recently as March 10.

The CIPS, the leading international buyers’ body, said the rate at which activity in the services sector was slowing had now improved for a fourth month running since its record low in November last year.

However, it still means that activity in the services sector has now slowed for 11 months in a row, the longest such run in the survey’s history.

The CIPS added: “Companies reported that lower incoming new work was the primary factor driving activity down in March. Sales fell for an 11th month running, reflective of ongoing market uncertainty, which continued to undermine clients’ willingness to commit expenditure.

“However, the overall decline in new work was the lowest in six months. Where new business rose, this was attributed to a combination of aggressive sales techniques and successful advertising.”

On a more downbeat note, the CIPS also revealed that the services sector is shedding jobs at the fastest rate ever, with the size of the UK private sector workforce falling in March for the 11th month running.

It said that companies had shed staff during March at their fastest rate since it started compiling such figures almost 13 years ago.

It added: “Despite some evidence of shorter working hours being used to prevent job cuts, the March survey indicated the strongest month-on-month contraction of staffing levels in nearly thirteen years of data collection. Falling levels of new business and streamlining — to improve competitiveness — were the principal factors driving job losses. Companies used a combination of natural wastage and redundancies to lower payrolls.” also revealed that the availability of staff to fill permanent job vacancies rose in February for the eleventh month running. It said anecdotal evidence suggested this was due to redundancies.

It said demand for all types of permanent and temporary worker had fallen during February as companies across Britain continued to streamline operations rather than hire extra staff.

The biggest falls in demand for permanent workers were in the secretarial and clerical and hotel and catering sectors. Demand for temp staff fell at the strongest rate in the accounting and finance.

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