THE latest economic figures have painted a mixed picture of Britain's economic recovery.

Figures showing better-than-expected activity levels in the UK service sector provided the economy with a much-needed boost.

However, last month high street sales slowed to their weakest for almost two years.

The Chartered Institute of Purchasing and Supply (CIPS) said its key activity index had increased to 55.1 last month, a rise on the 54.7 reported in July and higher than many economists had been forecasting.

The improvement in the UK economy's largest sector follows two months in which the monthly growth rate had shown signs of weakening.

In the report, one-fifth of all companies reported that the level of business activity at their units had risen during the month.

CIPS director Roy Ayliffe said the news was encouraging.

He said: "This year, service sector business activity has been consistently strong and reached a three-month high in August."

But a study by the CBI said the slowdown in consumer spending appeared to have set in, with annual sales growth at its lowest since October 2000.

Its report of 248 retailers showed 35 per cent of respondents recording sales up compared with a year ago, while 30 per cent said they were down, giving a balance of plus five on the CBI's scale.

The balance, calculated by subtracting those recording a fall from those seeing a rise, compares with plus 16 in July.

Ian McCafferty, chief economist at the CBI, said: "This survey confirms our view that the growth of consumer spending is slowing sharply from the rapid rates seen through most of 2001 and early 2002.

"Net incomes have been growing more slowly and consumer confidence may have been knocked by uncertainty in the financial markets and the wider economy.

"Retailers now believe an upturn will not come quickly and have reduced their expectations."

He said the Bank of England should "stand ready" to cut interest rates if the stream of gloomy economic news continues.

Data from the Office for National Statistics showed retail sales volumes rose 0.3 per cent in July - slightly below economists forecasts of about 0.4 per cent.