The survey also indicated the European Central Bank’s sustained campaign of interest rate rises is starting to take its toll on consumers and denting the services sector.
That was below the 50 mark separating growth from contraction and lower than all expectations in a Reuters poll which had predicted a modest dip to 49.7. Activity in Germany, Europe’s largest economy, contracted in July, increasing the likelihood of a recession in the second half. Indebted consumers feeling the pinch from rising borrowing costs and prices cut back on spending, and the services new business index went below break-even for the first time in seven months.
The decline came despite manufacturers running down backlogs of work and cutting their prices. Factories benefited from a sharp drop in input costs due to falling demand for materials and improved supply.