Growth in the services sector reached a five-year high in July, while job creation in the sector grew at its strongest rate since January 2001.

The latest NCB Purchasing Managers' Services Index, released yesterday, said good performance in the sector reflected growth in new demand as well as a strengthening of existing business.

The index also indicated a strong rise in expectations for activity in the coming year.

However, it also showed sharp increases in business costs during the month, though increasing competition protected consumers from bearing the full impact of this.

The non-government services sector accounts for over half of Irish gross domestic product (GDP), a measure of the full value of goods and services produced within the economy, as well as for almost one half of total employment.

The index is calculated by NTC Research on behalf of NCB Stockbrokers, and is based on a survey of 600 non-government companies in the services sector.

An index value above 50 indicates growth in the sector, while a value below 50 indicates decline.

The headline index, reflecting overall levels of activity, rose to 62.3 in July from 60.5 in June, with 33.9 per cent of survey respondents indicating that activity within their company grew. Some 11.2 per cent of respondents indicated that activity in their sector had declined. Among other indices included in the survey, the confidence index improved most sharply reaching a value of 76.1 in July, up from 72.5 in June. Survey evidence shows that performance was particularly strong in the technology, media and telecoms sector.

Yesterday also saw the release by NTC Research of equivalent data for the euro zone.

The Eurozone Business Activity Index rose modestly to 53.5 in July, from 53.1 in June.

By contrast, the US services sector performed poorly in July according to the services index of the US Institute for Supply Management.