Growth in activity in the Spanish services sector sped up in March spurred by higher domestic demand, although inflation weighed on business confidence in the sector, a survey showed on Wednesday.

S&P Global's Purchasing Managers' Index (PMI) for Spain's services sector, which accounts for around half of Spanish economic output, rose to 59.4 last month, the fastest pace since November 2021, up from 56.7 in February and well above the 50.0 mark that separates growth from contraction.

"Upturns in both activity and new business strengthened further in March to reach 16-month highs," S&P Global's economist Laura Denman said.

Business confidence, however, has fallen below the recent average, she said as "nagging concerns about the current inflationary environment and the potential for further interest rate hikes reportedly acting as dampeners to confidence."

Official data released late last month showed the inflation rate slowed during the month to 3.3%.

A sister survey of Spanish factory activity in March, released on Monday, showed an expansion in activity for the second month in a row.

Spanish economic growth is expected to slow this year. The government has forecast an expansion of 2.1% for 2023, following 5.5% growth in 2022. The central bank and many analysts expect to see even slower growth this year. (Reporting by Inti Landauro; Editing by Hugh Lawson)