The rise in activity was recorded despite not only a second straight monthly decline in inflows of new work, but also a notable reduction in employment in the sector – the steepest seen in over five years. Still, firms remained optimistic about the year-ahead outlook, and even slightly more so than in August.

On the price front, the latest data showed a sustained steep rise in firms' operating expenses, which reports from surveyed companies mainly attributed to wage pressures. Output price inflation meanwhile edged higher, taking it further above its long run average.

At 51.5 in September, the headline HCOB Germany Services PMI Business Activity Index showed a notable improvement from August’s 49.3 and was back above the 50.0 threshold that separates growth from contraction.

The latest reading was the highest in eight months and indicative of a modest increase in business activity, although it came in below its long-run average (52.7).

The completion of outstanding projects and orders helped to support business activity. The amount of backlogged work at German service providers fell solidly on the month, extending a sequence of depletion that stretches back to May last year.

Despite sustained weakness in demand, service providers were upbeat towards the outlook for activity in the year ahead, citing hopes of an improvement in economic conditions.

Wage pressures remained a key driver of overall input cost inflation across the German service sector, according to qualitative evidence gathered by the survey.

The HCOB Germany Composite PMI Output Index improved to a 16-month high of 52.0 in September, up from 50.5 in August. The uptick reflected a combination of stronger manufacturing output growth and a renewed expansion in services business activity.

By contrast, inflows of new work fell across the board in September, in a sign of weaker demand. The drop in factory new orders was the first for four months, while the decline in services new businesses eased slightly from that seen in August.

It was a similar story for employment, which fell in both monitored sectors and showed the steepest overall decline since November last year. This reflected a general lack of pressure on capacity, as evidenced by a broad-based drop in backlogs of work. Output price inflation ticked up to a four-month high, despite costs rising slightly more slowly than in August.

Looking ahead, business expectations were unchanged on the month, with weaker manufacturing optimism being offset by increased confidence amongst services firms.