Concerns over high inflation and the prospect of recession contributed to a softening in the outlook for the year ahead among firms in the services sector.

This is according to the latest Purchasing Managers' Index compiled by AIB.

Although services companies continued to report growth in activity in August, it was at the slowest pace in 17 months as new business inflows continued to lose momentum.

However, on the upside, the rates of inflation in input and output prices hit six-month lows and employment continued to expand at a solid pace.

"The higher costs are being passed on to customers, but similar to input prices, the rate of increase in prices charged also fell to a six-month low. So there are some signs that inflationary pressures may be starting to moderate somewhat," Oliver Mangan, Chief Economist at AIB, said.

There was continued growth in new business in August but the rate slowed for the sixth month in a row with reduced demand partly linked to inflation and weaker UK markets.

"Nevertheless, there was another significant increase in backlogs of outstanding business indicating that demand, though softening, remains quite strong," Mr Mangan noted.

Service providers continued to expand their workforces in August with the rate of job creation remaining above the long-run survey average.

Growth was said to have been broad-based in all four sub-sectors covered in the survey, although Business Services lagged the others.

The services sector covers areas of the economy as diverse as Communications and Information Technology, Financial and Business Services, and Tourism and Hospitality.