BRITAIN's services sector continued to rebound in May with growth at its fastest rate for 15 months.

A survey by the Chartered Institute of Purchasing and Supply (CIPS) showed the sector continued to recover from its October low, when it was hit by a fall in business following the US terrorist attacks.

In May, the sector expanded for the fifth month in a row and recorded its fastest pace of growth since February last year.

CIPS said its monthly index recorded 56.7 in May, up from 54.5 in April. On the index a figure above 50 indicates growth while below shows contraction.

CIPS said the growth reflected increased new business, underpinned by improved business and consumer confidence.

More than a quarter of companies reported their level of orders was up on a month ago, almost twice the number that said business was down.

New product launches and increased marketing also boosted business.

In addition, a number of firms said they were seeing a reactivation in bookings, which had been delayed by clients after September 11.

However, despite the growth, firms continued to shed staff.

CIPS said the service sector workforce contracted for the eighth month in a row, as firms sought to cut costs.

The fall in employment was still only marginal and an increased number of firms said they had taken on extra staff.

Ross Walker, economist at the Royal Bank of Scotland, said the figure was "better than expected" but was not enough to prompt an interest rate rise in July.

On Thursday, the Bank's Monetary Policy Committee kept interest rates on hold at four per cent for the seventh month in a row but the City is expecting a rise soon to dampen the booming housing market and strong high street sales.

Economists are split over whether a rise will come in July or August but insiders said the feeling was moving more towards an August rise.