THE SERVICES sector expanded at the fastest rate in more than two and a half years in July, driven primarily by domestic activity.

The latest NCB Services Purchasing Managers’ Index shows business activity picked up markedly last month and confidence in the sector remained high.

The overall index increased from a reading of 55.4 in June, to 55.7, which represents the sharpest growth rate since October 2007.

The surge in export activity, which proved a key driver of economic growth in the first quarter of the year, showed signs of slacking last month.

Although the services index reading for new export orders remained above the critical 50 mark, which divides expansion from contraction, it fell from 58.6 in June to a more modest 51.5 last month.

This was despite the fact that Irish services companies actively sought new business overseas in July.