Hopes that the economy is firmly on course to emerge from recession were given a further boost today as a key survey found renewed expansion in the crucial services sector for a second month in a row.

Overall activity levels among services businesses, which account for three-quarters of the economy, continued to climb last month, while confidence in the sector rebounded to its strongest since October 2007, the closely-watched CIPS/Markit purchasing managers’ survey reported.

But uncertainty over the strength and sustainability of the upturn that is taking hold was also reinforced again as CIPS said its headline gauge of conditions in services slipped back a fraction while still pointing to further expansion.

The survey’s headline reading edged down to 51.6 for last month, from a May reading of 51.7, confounding City predictions of a further rise, but remained above the breakeven figure of 50 that marks growth.

The slip in the main CIPS index came after the survey’s measure of new orders flowing into services companies dipped back into negative territory, suggesting a modest drop in orders last month, as it fell to 49.7 from 50 in May, registering its first fall since November.

Today’s report also found that services businesses cut their average prices to customers last month for an eighth month in a row as they battled to boost sales, while their costs rose slightly thanks to dearer energy bills, adding to the squeeze on profit margins in the sector.

“Anecdotal evidence from the survey panel indicated that economic conditions remained difficult overall, with clients reluctant to commit to expenditure given ongoing uncertainty,” the survey noted.

Economists said the setback shown by today’s data was a disappointment but did little to alter the broad picture of gradual economic revival in Britain. Despite that, the slide in the headline index will play on fears that a sustained recovery is far from guaranteed, and could be prone to relapse.

“The sideways movement in the headline business activity index in part reflects some consolidation,” said Paul Smith, senior economist at Markit.

“Nonetheless, the underlying data indicate that the business climate remains fragile with tight lending conditions and rising unemployment remaining key threats to continued service sector recovery.”

A key concern for services and other businesses remains the frailty of consumer demand thanks to weak household finances which have been battered by the past slump in house prices and share values, rising unemployment, a continuing squeeze on incomes and rising living costs.

Official data showed this week that households have responded by cutting into savings to shore-up their spending power during the first quarter.

In the longer-term, however, economists expect earners to move to pay down debt and rebuild their savings, in an expected trend that they believe may keep both consumer spending and the economy’s overall recovery anaemic.

That picture was underlined this morning as the Bank of England reported that homeowners paid down a record net total of £8.1 billion in mortgage debt in the first quarter as they strived to bolster their finances.

The figure marks a further sharp reversal of the past trend for so-called “equity withdrawal”, when homeowners cashed-in on the once rising values of houses and flats, borrowing against those to raise money for spending and paying off shorter-term debt.

That habit has now been abandoned as Britons opt instead to use spare cash to make net repayments of mortgage debt, thus boosting their equity stakes in their properties.

The first quarter’s £8.14 billion net injection of equity by homeowners was the biggest since 1970 and exceeds a downwardly revised total of £7.763 billion in the final quarter of last year.

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