While purchasing managers were more optimistic about the year ahead, the services business expectations index was below the long-run average at 59.4, although up from June's 56.7.
"The latest figures add weight to the argument that economic growth should return in the third quarter, which will represent the first green shoots in the recovery after contractions in both the first and second quarter", Kerr said.
The median forecast in a Reuters survey of 16 analysts had pointed to a reading of 51.1.
"Several companies raised activity as tourist numbers increased and export demand also ticked up", IHS Markit said.
Lay-offs continued across the sector. The rate of job shedding was the fastest on record, with panellists blaming weak client demand and temporary business closures.
There were signs of "light at the end of the tunnel" for the United Kingdom economy today as the crucial services sector finally returned to growth. Growth has stagnated in recent months, with the number of jobs created falling to a three-month low even during February's boom period. With capacity being restricted further, firms struggled to process backlogs in July.
"The PMIs should be in the high sixties, just because what they should be telling us is the monthly change in economic output, but they have been very subdued", said Kallum Pickering at Berenberg.
Lastly, prices data showed input costs increased for the first time since March amid reports of greater fuel and cargo costs alongside higher fees charged by suppliers.
"UK service providers are starting to see light at the end of the tunnel after a record slump in business activity during the second quarter of 2020", said Tim Moore, the economics director at IHS Markit.
The Caixin survey showed new export businesses received by Chinese services firms contracted again in July after a brief expansion, weighing on the growth of overall new business, which was predominately driven by domestic markets.
A sister survey of Spanish manufacturing activity on Monday showed a steeper rise to 53.5 in July from 49.0 in June.
The performance of the services sector is critical to gauge the economic situation as it has a share of almost 57 per cent in the Gross Domestic Product (GDP), which is the maximum among all three sectors - Services, Industry and Agriculture. The index marked a record low of 36.9 in April.