Hopes that the economy is firmly on course to emerge from recession were given another boost yesterday when a key survey found renewed expansion in the crucial services sector for a second consecutive month.

Overall activity among services businesses, which account for two thirds 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. However, uncertainty over the strength and sustainability of the upturn that is taking hold was also reinforced as CIPS said that its headline gauge of services conditions had slipped 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, but it remained above the break-even figure of 50 that marks growth.

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

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

A key concern for businesses remains the frailty of consumer demand thanks to weak household finances, which have been battered by the slump in house and share prices, rising unemployment, a squeeze on incomes and rising living costs. Official data showed this week that households have responded by cutting savings to shore up spending power. In the longer term, economists expect earners to pay down debt and rebuild savings, a trend that they believe may keep consumer spending and the economy’s overall recovery anaemic.

That picture was underlined yesterday morning when the Bank of England reported that homeowners had paid down a record net total of £8.1 billion in mortgage debt in the first quarter as they tried 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 properties to raise money for spending and paying off debt. That habit has been abandoned as Britons opt 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 £7.76 billion in the final quarter of last year.

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