BRITAIN's service economy reversed the decline seen in March to rise marginally last month.

But despite the improvement, data from the Chartered Institute of Purchasing and Supply (CIPS) showed that uncertainties about the short-term economic outlook remain widespread.

Marketing activities and new business development were responsible for the slight improvement in activity last month rather than any significant increase in levels of new business, the CIPS survey showed.

The end of the war in Iraq was reported to have boosted client confidence with the emphasis shifting back to the underlying strength of domestic and global economics.

Unlike other recent economic surveys, the CIPS figures were collected in the period since the end of major combat operations in Iraq, and therefore reflect post-war confidence among companies.

John Butler, economist at HSBC, said: "The recent bounce supports the view that the deterioration in business confidence in March was largely associated with the war."

Meanwhile, the impact of the flu-like Sars virus were also shown to have prompted firms in certain sectors to delay investment and spending decisions last month.

The CIPS business activity index posted a reading of 50.7 in April, up from 49.0 in March.

Roy Ayliffe, director of professional practice at CIPS, said: "Although the services sector has experienced only marginal growth in April, the fact that the sector has managed to pull itself out of contraction cannot be underestimated.

"It will now be more important than ever for purchasing managers to close the gap between their firms' operating costs and prices charged, to protect margins and to guard against the sector slipping into contraction again."

As demand remained weak in last month, backlogs of outstanding work at service providers contracted for an eleventh consecutive month. The rate of decline was the fastest since November 2001. Concerns about the existence of spare capacity and its impact on productivity led to a further round of job losses, the CIPS survey showed.

The rate of job shedding was only marginally slower than in March with companies saying that falling profit margins had increased the pressure to reduce costs.

The sharpest rate of job cutting was recorded in the IT and computing sector, followed by financial intermediaries.

On the upside, confidence about future activity levels rose last month but optimism remained below the average for 2002 as a whole.