Britain's service sector is becoming more optimistic about the future, according to a new survey.

The quarterly survey from the Confederation of British Industry has indicated that after the falls in confidence following the September 11 attacks and the economic slowdown in the US, confidence is returning to UK companies.

Although business volumes fell over the last three months, they did so at a slower rate than in the previous survey, reported the CBI.

And over the next quarter consumer services firms expect the slowdown to level out, while business and professional service firms expect the firstincrease since May 2001.

"The survey paints a mixed picture. Firms are getting more confident about long-term business prospects, but at the moment they are still havinga rough ride," said Ian McCafferty, chief economic adviser to the CBI.

"Long-term prospects for the service sector are encouraging but, in the short term at least, companies still face a challenging time," he added.

That message was reinforced by further data from Incomes Data Services showing that the number of firms freezing pay levels has increased.

Electronics and engineering firms and hotels have been among those not increasing workers' pay, while workers in the rail industry, public services and construction have seen higher pay deals.