Activity in Australia's services sector has slumped to a more than four-year low, driven by steep declines in sales and and new orders.

The Australian Industry Group's monthly Performance of Services Index fell by more than two points to a reading of 39.4 in July.

A result below 50 points indicates the sector is in decline.

Business owners said the fall in the dollar and the many interest rate cuts of the last two years were yet to help their bottom line.

But AI Group says just one in five businesses blamed uncertainty around the upcoming federal election for weak activity in the month.