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 Britain, outside the currency union, experienced a similarly gloomy
end to the year, with growth across services companies weakening to
its slowest since mid-2013. That underscored a wider loss of pace in
the economy as an election approaches.
Italy's service sector shrank for the first time in three months in
December while overall business activity in France contracted,
Markit's Purchasing Managers' Indexes (PMIs) showed.
With fears cheap oil will tip the now-19-country bloc into deflation
prompting calls for urgent action by the European Central Bank,
firms across the euro zone again cut prices, as they have been doing
for nearly three years.
"The downward revision to December's euro zone PMI added to signs
that the economy is barely expanding. And with the price indices
highlighting the threat of deflation, the ECB remains under intense
pressure to increase its support," said Jennifer McKeown, senior
European economist at Capital Economics.
A Reuters poll in December predicted that risks of a deflationary
spiral -- consumer price data for the euro zone due on Wednesday are
widely expected to show a fall in annual terms -- will push the ECB
to buy sovereign debt in early 2015.
After ECB President Mario Draghi said last week the central bank
stood ready to respond to the risk of deflation, many expect an
announcement to come as soon as this month. ECB policymakers meet on
Jan. 22.
Britain drew a line under its own quantitative easing program years
ago but so far only two of the Bank of England's nine policy setters
have voted to raise rates from their record low 0.5 percent. None of
the 44 economists polled by Reuters expect any change on Thursday
and financial markets have pushed back expectations for a first rate
hike deep into this year.
With May's general election expected to be close-run, the latest
batch of business surveys may perturb Conservative finance minister
George Osborne.
Sterling dived to a 17-month trough against the dollar after the PMI
data. The euro, trading near nine-year lows, resumed its downward
move on Tuesday.
DECEMBER DATA DISAPPOINTING
Markit's final December Eurozone Composite PMI, based on surveys of
thousands of companies across the region and seen as a good
indicator of growth, missed an earlier flash reading of 51.7, coming
in at 51.4.
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While beating November's 16-month low of 51.1 and marking the 18th
month the index has been above the 50 level that separates growth
from contraction, Markit said the indicator pointed to fourth
quarter GDP growth of just 0.1 percent.
"The December purchasing managers surveys do little to ease pressure
on the European Central Bank to take further stimulative action, and
sooner rather than later," said Howard Archer, chief European and UK
economist at IHS Global Insight.
The Markit/CIPS UK Services PMI suffered its biggest decline in more
than three years in December, falling to 55.8 from 58.6 in November
to touch its lowest level since May 2013.
But Markit said the survey still pointed to 0.5 percent GDP growth
at the end of 2014 and that there were signs of increased wage
growth, something the BoE has put at the center of its thinking on
when to raise rates.
"The surveys lost ground in the second half of the year but are
still at a level consistent with a solid pace of GDP growth. We're
not in a bad place, just not as super-strong as we were early in
2014," said Alan Clarke at Scotiabank.
(Additional reporting by Andy Bruce; Editing by Ross Finley and
Catherine Evans)
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