Britain's services sector expanded at its quickest pace in three months in July - and booming Birmingham was at the heart of the growth, it was revealed today.
The national figures confounded expectations of a slowdown, although rises in prices charged fell to a oneanda-half year low, an influential survey showed.
Birmingham Chamber of Commerce and Industry spokesman John Lamb said: "Birmingham is at the epicentre of this change and the offer in the city now rivals London. Sadly there has been a decline in manufacturing, however the service sector has grown dramatically and, of course, many of the big names now in Birmingham represent existing manufacturing businesses in the area."
He said 25 per cent of the Chamber's membership was now in manufacturing, whereas the split previously had been around 50-50.
The figures come as the Bank of England is today forecast to cut interest rates for the first time in two years.
They are not likely to stand in policymakers' way given a raft of other evidence showing the British economy is slowing.
The Chartered Institute of Purchasing and Supply/NTC Research services business activity index rose to a threemonth high of 56.3 in July from 55.8, against a forecast dip to 55.4 and well clear of the 50 mark dividing growth and contraction.
"July's upturn in service sector activity was closely linked to a robust rise in incoming new business," the report said.
"A number of panellists also noted that higher levels of business enquiries had boosted activity.
"Providing a further fillip to growth were reports of increased capacity and the start of new capital investment programmes." But prices charged rose at their weakest pace since January 2004 and input costs saw their mildest rises in nearly the same period, suggesting inflationary pressures remain tame in the sector that makes up the bulk of the economy's output.
Overall, the survey stands in sharp contrast to a CIPS/NTC survey on the manufacturing sector this week that suggested the slump at the nation's factories was deepening.
Reports from the retail sector have also been almost uniformly bleak, with the Confederation of British Industry's latest survey this week showing the weakest underlying sales in at least 22 years for July.
Some policymakers have recently voiced worries that the rapid slowdown in household spending might not be temporary and could drag down the overall economy even more if it spread to the services sector.
But the latest PMI survey, which does not include retailing, suggests those fears are as yet unfounded.
The pickup in business as well as new orders - which hit a four-month high of 56.8 - came alongside a modest rise in the pace of new hiring, pushing up the services sector employment index to 52.9 from 51.8.
Business expectations remained modest, however. The expectations index edged down to 72.6 from 72.9 and remained well-below the longterm average, NTC said.
"Concerns over the performance of the wider economy were reported to have dampened confidence in July," the report said.
The rate of increase in prices services companies pay to their suppliers slowed in July as steel prices fell, NTC said, although input price gains still remained fairly high. The sub-index dropped to 56.6, is lowest since February 2004.
Gains in prices charged by services businesses were much more modest, with this subindex down to an 18-month low of 51.3 from 52.6 in the prior month.
" Competitive pressures again prevented the majority of firms from raising their charges in July," the report said.
Chris Williamson, head of economic research at NTC, who compile the survey, said there was very little direct evidence that the fall in the pound against other major currencies had boosted British services by making them relatively cheaper.