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Confidence is growing in the badly hit services sector, says the Confederation of British Industry (CBI).

The organisation's latest Service Sector Survey, which covers enterprises in the professional and consumer services sectors, shows that the harsh economic climate is still having a heavy impact, but indicates that the sharp decline in business activity may be slowing.

According to the research, the past three months have seen the fastest fall in the volume of business for consumer services firms such as hotels, bars and restaurants, although rising prices resulted in a less marked decline in values.

In addition, business and professionals services, including accountancy, legal and marketing firms, experienced record deflation in average selling prices, leading to business values falling faster than volumes.

However, the poll reveals that both sectors predict slower rates of decline in business values and volumes over the coming three months, while 27 per cent of companies in consumer services are more optimistic than they were three months ago.

Ian McCafferty, CBI chief economic adviser, comments: 'This survey suggests that the sharpest falls may now be over and that the situation is starting to stabilise.'

The CBI's latest Industrial Trends survey found that that manufacturing firms believe the toughest phase of the recession could have passed, with the decline in output tipped to slow in the next quarter.