The services sector is close to stagnation, according to the latest NCB purchasing managers services index. July's business activity index dropped to 50.1, the second weakest in its 15month history, following the foot-and-mouth related contraction in April.

According to Mr Dermot O'Brien, chief economist at NCB Stockbrokers, the deceleration is chiefly the result of weakness in technology, media and telecoms. However, he added that optimism for the future remained high in the services sector generally.

The index recorded some growth in incoming new business, although the rate has fallen back from June. Firms reported being affected by the downturn in global markets. Backlogs of work fell marginally in July reflecting the slower growth of demand for services.

Employment grew at the same as June but well below the pace of last year.

In contrast, the euro-zone services PMI improved for the consecutive month to 53.2 in July from 52.9 in June. The data surprised the market which had been anticipating a drop to 52.2.

The July gain is the second consecutive monthly improvement and contrasts with the persistent slide of the manufacturing PMI.