Uncertainty over stamp duty during the general election campaign contributed to a marked slowdown in the rate of expansion in the services sector in May, new data suggests.

Comparable international figures for the euro zone at large supported the case for further interest rate increases by showing an improvement in new business and an 11-month high in employment growth.

NCB Stockbrokers said its monthly survey of private service companies indicated that the rate of growth in the sector was at its weakest last month since August 2003, but remained at a robust level. At the same time, employment in the sector increased.

Economist Eunan King said survey respondents cited the general election and uncertainties in the construction sector as factors adversely influencing activity.

"The May report is thus probably not a good guide to underlying activity and we would expect the removal of the election and stamp duty issues to support activity in the next few months," he said.

The seasonally adjusted business activity index in the sector declined to 54.9 from 58.1 in April.

Business confidence rose month on month, but was below the average for the past year.

The data is derived from questionnaires sent to 600 Irish service firms, excluding retailers and wholesalers. A score above 50 suggests activity is growing and a score under 50 suggests activity is contracting.

Separate research suggested service sector activity in Britain grew slightly more than expected last month, but indicated also that companies raised prices at their weakest rate in more than a year.

The Chartered Institute for Purchasing and Supply/NTC index for activity in the services sector - covering companies ranging from telecoms providers to cafes - came in at 57.2.