The euro zone private sector has expanded at the fastest pace in seven months this month led by rising new orders, surveys showed on Friday, but firms are still cutting prices, suggesting the ECB will have a tough time spurring inflation.

The jump in activity will provide a glimmer of hope for policymakers who have struggled to steer the monetary union towards growth with modest inflation, but may also support the European Central Bank's decision to buy sovereign bonds. "For the first time since mid-2011 we're seeing a broad-based improvement in growth," said Chris Williamson, chief economist at survey compiler Markit. "This in part reflects increased confidence after the ECB announced quantitative easing, and we'll see more improvements once asset purchases start in March."

Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies and seen as a good growth indicator, rose to 53.5, its best since July, from a final reading of 52.6 last month. That beat even the highest forecast in a Reuters poll and marked the 20th month above the 50 level that separates growth from contraction.

Mr Williamson said the PMI pointed to 0.3 per cent GDP growth in the current quarter, matching a Reuters poll, adding that a follow-through in March could push it up to 0.4 per cent. In a positive sign for future activity, the gauge of new orders growth at services firms rose to 53.3 from 51.7. Growth in order backlogs rose to the highest level in nearly four years.

The PMI covering the dominant service industry also beat all forecasts by rising to 53.9, while the factory PMI nudged up to 51.1, less than expected, with output increasing slightly faster. But continued price cutting by firms, although at a slower pace, underscored the difficulty policymakers face in bringing inflation back to the ECB’s target rate of below but close to 2 per cent from January’s record-equalling 0.6 per cent.

The ECB is set to start buying €60 billion worth of government bonds a month from March to ward off deflation, although the majority of economists in a poll this month said that is not likely to be enough to spur price growth.

Reuters