The Irish service sector expanded strongly in July for the 50th consecutive month, but employment growth slowed, according to the latest NCB Purchasing Managers' Services Index.

Higher sales volumes and company expansion plans led to a strong increase in activity.

But although the rate of expansion remained robust, it was considerably below growth levels recorded earlier in the year.

"The services sector continued to show strong growth, if not at the stellar pace of 2005 and 2006," commented Eunan King, senior economist at NCB Stockbrokers.

Although new export business continued to increase in July, the rate of growth was the slowest in 11 months.

Firms in the service sector hired additional staff in July in response to higher new order volumes, but job creation nevertheless slowed to its lowest rate in two years, with firms citing efficiency gains and outsourcing as contributing factors.

Service providers reported a sharp increase in input costs last month. Prices charged also rose moderately as firm tried to protect their margins.

Business confidence among service firms fell to a 10-month low in July, mainly as a result of concerns over the impact of recent interest rate rises.

However the profitability of service firms showed a marked improvement in July compared to three months earlier.