Business activity in the services sector of the economy fell for the third month running and plumbed its lowest level for a year-and-a-half in May, according to economic data published yesterday.

The NCB purchasing managers' services index slipped to 47.5 from 48.6 in April. The index takes 50 as its no-change benchmark.

May marked the second month running that the index remained below this critical figure, and it was the third consecutive month during which the index recorded a fall.

It was also the lowest return recorded since the autumn of 2001, when activity dipped sharply in response to the World Trade Centre attack.

The technology, media and telecoms sector recorded the sharpest individual fall, dropping from 46.8 in April to 41.3 in May.

Financial services fell from 54 to 47.3.

Business services recorded a modest increase of 1.2 to 51.6.

Transport and tourism bounced back from the SARS crisis, climbing from 43.9 to 51.1.

Order books continued to shrink during the month. The incoming new business index came in at 47.8, down on the April return of 49.

NCB's chief economist, Mr Eunan King, yesterday agreed that the index painted a negative picture of the economy. But he said it was at odds with some other indicators.

He pointed out that this week's Exchequer returns showed a near 12 per cent increase in VAT returns, while figures for the first quarter of the year indicated that employment in services continued to rise.

"Interest rates are falling and the tax burden is not going to increase, but the sector remains vulnerable to ongoing weakness in the international situation," according to Mr King.