British services companies reported a second month of growth in March, suggesting the overall economy expanded in early 2023, and they also turned more upbeat about their prospects in the year ahead, an industry survey showed on Friday.

The 'flash' or preliminary reading of the S&P Global/CIPS UK Composite Purchasing Mangers' Index (PMI) - spanning services and manufacturing firms - came in at 52.2 in March, down from 53.1 in February but above the 50 threshold for growth.

Economists polled by Reuters had forecast a reading of 52.8.

While the services PMI was in positive territory at 52.8, the manufacturing survey slipped to 48.0, representing its eighth month of contraction.

Firms across the two sectors were more optimistic about their prospects over the next 12 months, with the degree of confidence hitting its highest since March 2022.

"With the flash PMI surveys signalling a second month of rising output in March, the UK economy looks to have returned to growth in the first quarter," S&P Global's Chief Business Economist, Chris Williamson, said.

"An upturn in companies' expectations for the year ahead indicates that business sentiment has been little affected so far by the banking sector woes and that firms are more focused on growth possibilities."

While the rate of growth in the services industry eased this month compared to February, new business activity rose at the sharpest pace in 12 months. Manufacturing output fell marginally as subdued demand depressed volumes.

Friday's survey added to a series of improved measures of the UK economy which had appeared to be heading for a recession in early 2023, although on Thursday the Bank of England said it still expected it to shrink in the January-March period before picking up in the second quarter.

Official data, published earlier in March, showed the economy unexpectedly returned to growth in January and the country's official fiscal forecasters last week said Britain would probably dodge a recession this year.

S&P Global's input price index - a good guide of future inflation pressures - showed growth in costs for firms falling to the lowest since April 2021, although overall cost pressures remained high by historical standards.

Service firms flagged a steeper rise in input prices than manufacturing companies, with the latter recording the slowest increase since June 2020.

Companies said lower fuel bills and transport costs, partly offset wage pressures and higher food prices.

The Bank of England on Thursday increased interest rates to 4.25% from 4% after a surprise surge in consumer price inflation which hit 10.4% in February. But some economists said the hike might be the last in a run of rate hikes going back to December 2021.

(Reporting by Suban Abdulla; Editing by William Schomberg and Susan Fenton)