The CBI's quarterly survey of the sector found that optimism in both the consumer and professional services sectors had risen at the fastest rate since the data began being collected in 1998.
That positive outlook was backed up by business volumes expanding at the quickest pace seen since 2005 while profitability improved for the first time since 2007.
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Such improvement in profit came in spite of the fact that costs were generally outpacing selling prices in the three months to the end of February.
Anna Leach, the CBI's head of economic analysis, said it was a strong start to the year.
She said: "2014 has started well for our service sector firms. Business activity is up, optimism is high and profits are improving too.
"It's encouraging that strong growth is being reported across the whole sector.
"Headcount is predicted to rise next quarter and expectations for an expansion of business over the year ahead are the strongest for a decade."
In consumer services, which include hotels, bars, restaurants, travel and leisure, optimism showed that a rounded net balance of 43% of those questioned were more positive than three months ago.
A balance of 40% said business volumes had improved compared with the previous period.
On the chance of employee numbers increasing, the net balance was 42% and the highest since November 2007.
In professional services, optimism came in at 45% with a balance of 41% of firms saying that volumes were higher than three months ago.
When asked about the overall profitability, the net balance was 13% and at its highest since November 2007.
In consumer businesses, the net balance of those planning to expand was the highest since February 2010 at 38% and in professional services it was at 46%, the highest level recorded since May 2004.
IT spending remains the biggest area of likely investment for firms, but capital spending intentions remained positive across all categories for the second consecutive quarter.
Ms Leach said: "As the recovery gets more firmly entrenched, there are positive signs that 2014 could be a good year in the service sector."
The research was conducted between January 27 and February 12 with 82 professional service firms and 57 consumer ones taking part.
The CBI research suggests that the services sector is on course to make a solid contribution to first-quarter GDP.
However, the closely watched Chartered Institute of Purchasing and Supply's Purchasing Managers Index (PMI) for January showed business activity in the services sector dipping to its slowest pace in seven months.