The services sector shrank in January for the second consecutive month, and employment fell at the fastest pace in almost two years, new data showed today.

But the pace of contraction in new orders moderated, for the month, the NCB services Purchasing Managers' Index showed.

The overall index fell to 48.3 last month, from a reading of 48.4 in December.

Employment in the sector showed further deterioration, as the index fell to 44.5 from 47.3, the sharpest decline since April 2010.

"Within our sample 24 per cent of respondents lowered staffing levels, while only 9 per cent raised them," said NCB chief economist Brian Devine. "The only sector with an overall positive employment reading in the month was technology, media and telecoms.

However, there was some cause for optimism. Although new orders showed a fall, the decline was marginal, with the index reading 49.7 compared with 47.4 a month earlier.

Meanwhile, new export orders continued to rise, from 52.1 to 52.8.

Confidence was also higher, with sentiment rebounding from a 13-month low recorded in December.

"Anecdotal evidence suggested that optimism partly reflected expectations of new order growth, with particular focus on external markets. There were also some hopes that economic conditions will improve over the coming year," NCB said.