SIGNS of a pick-up in the service sector have failed to dispel uncertainty about the economic recovery, according to a CBI and Grant Thornton survey published today.

The latest quarterly service sector survey looks at business and professional services firms such as advertising agencies and management consultants, as well as consumer services firms such as hotels and restaurants.

Business and professional services firms saw a pick-up in the value and volume of business over the past three months.

But both remain significantly below normal and confidence about the business situation has failed to improve.

Adrian Smith, Grant Thornton regional corporate finance partner, said: "The continuing lack of confidence in the service sector, despite some positive signs, can be attributed to a growing number of destabilising factors which have fuelled a gloomy attitude towards the future."

He added: "Predictions of a drop in house prices, the possibility of war with Iraq, coupled with a continuing flat stock market and some industrial unrest appear to have created a negative sentiment which a small increase in the value and volume of business is not going to redress.

"This prolonged uncertainty in the economy is here to stay unless some of the issues currently affecting optimism are seen to be resolved."

Ian McCafferty, CBI chief economist, said: "Business services have seen a pick-up in business in recent months, yet this has failed to feed through to optimism and they remain worried about the future.

"Consumer services have seen the steady decline in their sector level out, yet they have become much gloomier.

"These firms were expecting a recovery much earlier in the year and as the turnaround has become more prolonged and uncertain their confidence has been dented."