Activity in the economically important services sector softened somewhat in March while sentiment fell to a new low for the year, according to the latest AIB Ireland Services PMI survey.

The index had a strong reading of 55.7 – a number above 50 indicates growth – but this was down from February’s nine-month high of 58.2, suggesting an inconsistent post-Covid expansion.

The Irish figure was in line with the overall eurozone reading of 55.6 and higher than both the UK and the US.

March was the 25th month in a row of growth in Irish services, marking one of the best performances in the history of the survey.

Yet many firms are still looking ahead to the next 12 months with some trepidation, with confidence falling to a three-month low and below its long-run average, driven by concerns about future demand.

But the overall outlook remained upbeat as firms continued to hire new staff to deal with backlogs of work, although many reported challenges sourcing and retaining employees.

One possible reason for the slightly darkening mood is the persistence of cost pressures in the sector, even as businesses are able to shift the burden onto customers.

“While the pace of price increases eased in March, inflationary pressures remained elevated throughout the services sector,” said AIB chief economist Oliver Mangan.

“Businesses continued to report upward pressure on prices across a broad range of inputs, in particular wages and energy bills. Higher costs continue to be passed on in higher prices to customers, with the rate of increase in selling prices still steep, despite falling to an 18-month low.”

Notably, the transport, tourism and leisure segment returned to expansion territory for the first time since August, helped by a rise in new business. All four segments covered by the survey saw new business expansion, especially from abroad, Mr Mangan said.

The upbeat services PMI contrasts with a gloomier report from the manufacturing sector earlier in the week, showing manufacturing fell into contraction territory for the first time in three months as firms began to scale back due to weakening demand.

The sector slumped in March as new orders and factory production fell after briefly showing signs of recovery earlier in the year, muddying the overall economic picture for Ireland, which had brightened considerably with signs of expanding economic activity and several optimistic growth forecasts.