THE services sector – the locomotive of the UK economy – grew at a faster pace than expected last month, defying City forecasts it would stagnate, but employers shed jobs at the fastest pace in more than a year.

The Markit/CIPS Purchasing Managers' Index (PMI) showed services activity rose to 52.1 in November from 51.3 the previous month. A reading above 50 indicates growth. However, the index was still below September's reading of 52.9.

The survey showed that employment in the service sector, which makes up 75% of the total economy, fell at its fastest pace for 15 months and incoming new business grew at its slowest rate of the year

Samuel Tombs, UK economist at Capital Economics, said: "The modest improvement in the UK CIPS/Markit report on services in November does not alter the big picture that the overall economy is verging on recession.

"All in all then, the economy appears to be on the brink of a double-dip. We expect GDP to contract by around 0.5% or so in 2012, but the risk of an even deeper slump remains significant if this week's attempts by eurozone policymakers to sort out the debt crisis come to nothing."

The UK economy grew at a better-than-expected 0.5% in the third quarter but analysts warned this misrepresented underlying weaknesses, and the prospect of a contraction in the final three months of the year was likely.

The economic picture has darkened in recent weeks as a number of think-tanks and agencies, including the Bank of England and Office for Budget Responsibility, downgraded their forecasts for the UK recovery and the eurozone debt crisis deepened.

Chris Williamson, chief economist at Markit, said: "Whether or not the economy slides into recession next year depends to a large extent on whether politicians can find a workable solution to the eurozone's crisis.

"Until then, uncertainty is likely to prevail, which is damaging to both business and consumer confidence and raises the risk of the UK sliding back into a new downturn in the first quarter."

The survey said the higher activity in November reflected rising volumes of incoming new work and increased marketing and advertising.

But there was evidence that the business climate remained tough, with the eurozone debt crisis undermining confidence, while growth was reportedly hit by low bank lending and the public spending cuts imposed by the Coalition Government.

The lower level of bank lending has been a growing trend in recent months, with smaller firms reporting the biggest problems. The Government has implemented several plans to improve this situation, but so far all have failed.

Chancellor George Osborne announced a fresh plan in his autumn statement that directly targets small businesses. This scheme would see the Government becoming guarantor for loans of up to £20 billion, which may increase to £40bn.

Business confidence was still firmly in positive territory at 67.4, but had eased back from 68.5 in October because of general economic uncertainty and the public sector spending cuts.

Meanwhile, the service sector saw input prices rise, driven by soaring energy bills and increased transportation costs. The survey reported that companies were unable to pass on the sharp increase in input costs.

The UK economy as a whole looks likely to barely grow in the final three months of 2012, and PMI surveys last week showed sluggish construction activity and the biggest fall in manufacturing since June 2009.

The Paris-based Organisation for Economic Co-operation and Development has warned that Britain is entering a modest recession, while the Government has said the economy will stagnate until mid-2012 and could easily start to contract.