The services sector shrank for a fourth month in a row, although the fall in output was slower than in July.

The sector, which includes businesses such as hotels, cinemas and restaurants, is particularly sensitive to the economic slowdown as consumers cut back on spending.

Data from the Chartered Institute of Purchasing and Supply (CIPS) and Markit’s survey of business activity revealed its index was slightly higher in August at 49.2, from July’s series low of 47.4, but sill below the crucial 50 ‘no change’ benchmark.

Although still low, business expectations also rose as costs rose at a slower pace.

However, there were further job cuts in August, with a net decline in staffing levels registered for the fourth month in a row, CIPS said.

Cost pressures were one reason behind the lay-offs in August, with prices continuing to rise, the survey found. Job cuts were most prevalent in the hotel and restaurants sector, CIPS said.

Roy Ayliffe, director of professional practice at CIPS, said: “Purchasing managers in the UK services sector reported a continued decline in August, although at the weakest rate since May.

“However, any murmurs of hope were silenced by recession fears and uncertainty continued to dominate, as the property downturn hit client spending.”

The figures mean the services, manufacturing and construction sectors are already in recession, strengthening the likelihood that the UK economy as a whole will face recession in the coming months.