The UK’s service sector expanded at its fastest rate for five years in July as the easing of lockdown restrictions helped to drive a rebound in activity.

The closely watched IHS Markit/CIPS Services purchasing managers’ index (PMI) rose to 56.5 last month from 47.1 in June.

However, the figure was marginally lower than analyst expectations of 56.6.

Any figure above 50 represents expanding business activity.

Service providers saw activity surge after being boosted by the reopening of non-essential retailers in mid-June and a raft of leisure and hospitality businesses at the start of July.

Around 38% of respondents reported an increase in business activity during the month, with only 24% reporting a decline.

However, it said that some firms noted that “output had simply risen from an extremely low base” as concerns remain over the length of time the economic recovery will take.

Meanwhile, new business volumes increased for the first time in five months and at the fastest pace since January.

Tim Moore, economics director at IHS Markit, said: “UK service providers are starting to see light at the end of the tunnel after a record slump in business activity during the second quarter of 2020.

“Higher levels of service sector output were almost exclusively linked to the reopening of the UK economy after lockdown measures and the subsequent return to work of employees and clients.

“However, these are still the very early stages of recovery and survey respondents often commented on achieving growth from an exceptionally low base.”

The survey also showed employment was a “weak point in July” as staffing numbers fell at an accelerated pace as the winding down of the Government furlough scheme neared.

It said that around one-third of those surveyed reported a drop in employment, while only 11% signalled an improvement.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “This undoubtedly good news is masking some underlying problems that will still need addressing.

“Employment fell even more quickly in July as some firms made redundancies in response to worries about the length of the recovery.”