06 March 2006 | Rebecca Ellinor

UK services companies maintained their impressive start to 2006 with the highest rate of business growth for almost two years.

February's CIPS/RBS Purchasing Managers' Index (PMI), in which an index above 50 indicates growth, recorded a reading of 58.9. That is compared with 57 in January and is the highest recording of activity since April 2004.

The seasonally adjusted new business index also improved. It came in at 58.2, an improvement on January's figure of 56.9.

Increased workloads and development of new projects led to a rise in employment for a 31st month in a row. However, the seasonally adjusted employment index posted a reading of 51.8, which is the weakest growth rate for three months. A number of panellists commented that efficiency and cost considerations restricted jobs growth and in some cases actually led to redundancies.

Levels of work outstanding increased in February for a third successive month. The outstanding business index stood at 51.8 and was the highest recorded since May 2004. The report said this implied a mild degree of capacity pressure in the UK services sector last month.

Input price inflation accelerated in February to its sharpest pace since October. Panellists reported that the prices of energy, fuel, labour, raw materials and utilities had all risen since the previous month and strong competition stopped many of them from passing on increased costs to clients.

The outlook for the sector remained positive, with over half of survey respondents expecting activity to continue to rise over the next 12 months. Overall confidence was only marginally lower than January's 10-month high. The business expectations index registered a level of 74.3.

Roy Ayliffe, CIPS director of professional practice, said: "The UK services sector continued its run of stellar performances, as levels of activity in February reached their highest for nearly two years.

"On the downside, accelerating input price inflation, associated with the cost of fuel, energy and raw materials, continued to exert pressure on service providers."

In the US, the Institute of Supply Management recorded a non-manufacturing PMI of 60.1 for February - an increase on January's index of 56.8.

* Coverage of previous PMI reports is available at www.supplymanagement.com/pmi

* The full text of the ISM reports on the US manufacturing economy is available at www.ism.ws

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