Activity in the service sector hit its highest level for three years last month according to a survey of 600 private services companies, excluding the retailing and wholesaling sectors.

The NCB Purchasing Managers' Services Index rose to 60.6 from 58.1 in March providing "further strong evidence on the buoyancy of the domestic economy and solid justification for expectations that GDP [ economic] growth in 2005 will better the 4.9 per cent rate for 2004 published last week," according to Mr Dermot O'Brien ,the chief economist at NCB Stockbrokers.

The survey found that firms were stepping up activity to deal with higher levels of incoming business, reflecting "strengthening demand and high levels of consumer and business sentiment".

It also found that many business were increasing sales efforts as well as marketing and advertising.

Staffing levels expanded at the sharpest rate for four months, with anecdotal evidence that firms were hiring to satisfy rising levels of new business and help develop a broader range of services. Costs are also rising in the sector, due to higher staff salaries and fuel costs.

"The rate of input inflation ticked up for the first time in five months," according to NCB who added that service providers put their prices up for the sixth month in a row. The rise last month was modest, but still ahead of the previous rise.