Driven by a surge in new business, Britain's service economy moved up a gear last month reversing the recent trend of slowing growth.

Service activity has now grown for 24 months without a break.

The headline measure of service activity published by the Chartered Institute of Purchasing and Supply and NTC research reached an index figure of 57.0 in March, the strongest showing since May last year and up sharply from 55.1 in February. Anything over 50 on this scale indicates growth.

This unexpectedly bullish news came on the eve of the monthly meeting when the Bank of England's Monetary Policy Committee decides whether to move interest rates.

Such a recovery, if sustained, must increase the likelihood that the Bank will raise its official interest rate from the present 4.75 per cent some time this summer.

Yesterday, though, City economists remained overwhelmingly convinced that an increase tomorrow remains highly unlikely - although the Bank has insisted that it would not be deterred by the imminence of a General Election.

Service organisations won new orders at the fastest pace since last June and responded by taking on more staff. The CIPS employment index rose to 52.0 - higher than in any month since November and up from 50.5 in February.

This picture of a reviving service economy contrasted with that in the euro zone, where expansion in new business slowed last month and companies ate into backlogs of work to keep the growth in activity steady.

New contracts accounted for most of the growth in activity, Roy Ayliffe, director of profession practice at the CIPS, noted.

"Firms reported hiring additional staff to meet rising workloads and sentiment about the future of the sector remained positive, with more than half of companies anticipating higher levels of activity in a year's time," he said.

Although British service companies are optimistic about the outlook for the next 12 months - the CIPS index measuring business expectations index rose to 75.5 in March from 73.6 in February - their profit margins remain under pressure.

The input prices index measuring costs rose to 58.8 in March from February's 58.6.

Companies still tried to pass at least some of these costs to customers. But strong competition restricted their pricing power, knocking the index for prices charged down to 51.9 from 53.2 in February, its lowest reading in 14 months.

Some service organisations reported that backlogs of work rose in March, so that the outstanding business index rose to 50.8, the strongest reading since August, from 50.2 in February.

IT and computing companies recorded the sharpest increase in unfinished business, evidence that some are doing well.