Stronger-than-expected growth in the powerhouse services sector last month is likely to have saved the economy from contraction in the final quarter of 2011, a survey has claimed.

The Markit/CIPS Purchasing Managers' Index (PMI), where a reading above 50 indicates growth, showed services rose to 54 in December, up from 52.1 the previous month. The City had expected the reading to fall to 51.5.

It comes on top of better-than-expected performances for both the manufacturing and construction sectors in December.

The reading across all three sectors rose to 53.2 in December from 51.2 in November in the strongest expansion since July.

But with business confidence in the services sector at a joint two-and-a-half-year low, there is still doubt as to whether the UK can avoid slipping into a recession in coming months.

Markit chief economist Chris Williamson predicts the economy will show no growth in the final quarter of 2011 despite the improved performance in December.

He said: "Services are likely to have expanded by around 0.3% to 0.4% in the final quarter, down from 0.7% in the third quarter but offsetting a renewed downturn in manufacturing and sluggish growth of construction to help the UK avoid a slide back into recession, at least for now".

The overall reading for the services sector was the highest since July and means it has shown growth for every month of 2011, albeit at a slower rate than normal.

The latest increase was driven by a solid rise in new business, which was also at its highest level since July.

The number of people employed in the sector edged slightly higher after two months of modest falls.

But companies' margins continued to be squeezed as they struggled to pass on rising costs and in some cases were forced to offer discounts to drum up business. Input prices rose at "a marked and accelerated pace", driven by utility bills and wage costs.

CIPS chief executive David Noble said: "December capped a year of reasonable growth for the UK service sector but significant risks still lurk under the surface, not least the outcome of ongoing efforts to shore up eurozone economies."