A keenly watched snapshot of activity spanning hotels and restaurants to transport and communications – representing more than three-quarters of UK output – showed it put on its best spurt since July 2015.
This completed a hat-trick of forecast-beating updates this week, after manufacturing and construction purchasing manager’s surveys.
It points to the economy expanding by 0.5 per cent quarter-on-quarter in the last three months of the year and by 2 per cent for the year, as growth accelerated to a 17-month high.
But economists said uncertainty over Brexit negotiations presents Bank of England policymakers with a dilemma over whether to hike interest rates or launch more stimulus measures.
ING senior economist James Knightley said: “This is clearly a very positive story, but we do worry that sentiment surveys have weakened and the situation is likely to deteriorate further as household incomes are squeezed by rising inflation.
“Furthermore, with Article 50 set to be triggered in the next three months the Brexit process will soon start in earnest and the uncertainty that this generates may see businesses choose to sit on their hands rather than look to expand.”
The Markit/CIPS purchasing managers’ services index rose for the third straight month, to 56.2 from 55.2 in November.
A reading above 50 means expansion. New business growth was linked to marketing, product launches, government contracts, export business and new account.
The rate of job creation matched November’s seven-month high. But survey data also signalled “substantial” inflationary pressures as prices charged rose at the strongest rate since April 2011.
IHS Markit chief economist Chis Williamson said: “A buoyant service sector adds to signs that the UK economy continues to defy widely-held expectations of a Brexit-driven slowdown.”