Euro zone businesses outran British firms at start of second half

Businesses across the euro zone started the second half with robust growth, outpacing British counterparts which are struggling to regain momentum as consumers keep their hands in their pockets, surveys showed.

Signaling the bloc's positive readings could continue into August, new orders rose, backlogs of work were built up and firms increased headcount. But British services firms' expectations for the year ahead were among the weakest since late 2012.

IHS Markit's final composite Purchasing Managers' Index for the euro zone was 55.7 in July, down from June's 56.3 and a flash estimate of 55.8. It has been above the 50 mark that divides growth from contraction since mid-2013. 

The British version only nudged up to 54.1 from 53.8. 

The latest PMI figures suggest the euro zone economy will grow 0.6 percent this quarter, IHS Markit said, whereas Britain is set for 0.3 percent growth. A Reuters poll last month had 0.4 and 0.3 percent forecasts respectively.

The July surveys will bolster the case for the Bank of England to keep interest rates on hold later on Thursday while rising prices in the currency union could give the European Central Bank more grounds for tweaking its monetary policy in the autumn. 

Improving economic growth in Europe and hints from ECB policymakers have helped shape expectations for a shift, probably in the form of an announcement it will taper its asset purchases, even though the inflation outlook doesn't point to a need for a change just yet. 

In September, the ECB is expected to announce a move away from its ultra-easy policy, according to a Reuters poll. 

By contrast, only two of the 80 economists polled by Reuters last month expect the BoE to tighten policy later on Thursday and medians in the survey suggest Bank Rate will be left at its record low 0.25 percent until 2019. 

Britons voted just over a year ago to leave the European Union and since then workers' pay increases have fallen further behind inflation, compelling shoppers to hold back on purchases. 

Spending played a large part in Britain's economic growth last year and although a big fall in sterling since the Brexit vote has benefited manufacturing exporters, consumers have been hit by a bounce in prices of imported goods and services.