Growth in activity in the services sector increased further in June but cost pressures continued to intensify for firms with input price inflation hitting its highest level since 2008, a survey reveals today.

AIB's IHS Markit Purchasing Managers' Index (PMI) rose to 63.1 from 62.1 in May, the highest level in more than five years.

That is up from a 2021 low of 36.2 reported in January when the economy was back in lockdown and marked the fourth successive month the index has crossed the 50-mark separating expansion from contraction.

Ireland further eased one of Europe's strictest shutdowns in early June by permitting outdoor dining and drinking in bars and restaurants.

But plans to allow indoor service have been delayed due to concerns about the Covid-19 Delta variant.

AIB noted that growth in overall business activity was very strong across all four sub-sectors in the survey for the third consecutive month, with exceptionally strong growth recorded in the Transport/Tourism/Leisure sector as hospitality started to re-open.

"The pick-up in new business resulted in a further marked rise in the volume of outstanding work for the fourth month in a row. Meanwhile, employment expanded particularly strongly in June," AIB added.

AIB said the surge in demand was driven by a release of pent-up demand as more restrictions were eased, but fuel, wages, insurance, utilities, freight and Brexit-related costs were all reported to have risen in June.

"Cost pressures continue to intensify, with input price inflation hitting its highest level since 2008 on a broad range of price rises. Prices charged to customers increased at a more moderate pace, pointing to a continuing margin squeeze in the sector," AIB's chief economist Oliver Mangan said.

But he said that companies in all of the four sub-sectors are very optimistic on the 12-month outlook, with the Future Activity index at its second highest level since September 2017.