Euro zone firms expanded at their slowest rate in six months in June while cutting the prices they charge, surveys showed, signalling business conditions remain tricky as monetary authorities prepare to give a policy update.

Business activity in France, the euro zone’s second-biggest economy, shrank at the fastest rate in four months while in Germany, the largest, the pace of growth slowed.

Service providers also said they cut prices for the 31st month running to drum up business, although not as sharply as in May. With June inflation at just 0.5 per cent in the euro zone, the surveys will provide worrying reading for policymakers.

Markit’s Composite final June Purchasing Managers’ Index (PMI) for the euro zone, based on surveys of thousands of companies across the region and a good indicator of growth, was in line with a preliminary reading of 52.8, down from May’s 53.5.

The PMI for the euro zone’s dominant service industry fell to 52.8 from 53.2, also in line with an earlier flash reading and above the 50 mark that separates growth from contraction.

A resurgence in Spain and Italy supported German expansion but France again provided the biggest drag on the bloc’s tentative recovery.

French business activity contracted for the second month in a row, casting fresh doubt on the strength of the €2 trillion economy.

Euro zone retail sales were flat in May, separate data showed earlier on Thursday, giving further evidence of a lack of momentum in the bloc’s economy.

It was a different story across the channel in Britain, whose services industry expanded steadily, suggesting the economy grew robustly throughout the first half of 2014 and possibly pointing to an interest rate hike this year.

While Bank of England officials have recently given mixed signals on the timing of a potential interest rate rise, the BoE is widely expected to be the first major central bank to begin hiking borrowing costs.

They say markets have underestimated the likelihood of a move in 2014, but also think more slack needs to be used up before that happens.

Reuters