LONDON, July 22 Reuters Euro zone business activity unexpectedly contracted this month due to an accelerating downturn in manufacturing and a nearstalling of service sector growth as burgeoning costs pushed consumers to cut back on expenditure, a survey showed.

SP Global39;s flash Composite Purchasing Managers39; Index PMI, seen as a good gauge of overall economic health, fell to 49.4 in July from 52.0 in June, well below all forecasts in a Reuters poll that had predicted a more modest dip to 51.0.

A reading below 50 indicates a contraction and July39;s preliminary estimate was the lowest since February 2021.

The euro zone economy looks set to contract in the third quarter as business activity slipped into decline in July and forwardlooking indicators hint at worse to come in the months ahead, said Chris Williamson, chief business economist at SP Global.

Excluding pandemic lockdown months, July39;s contraction is the first signalled by the PMI since June 2013, indicative of the economy contracting at a 0.1 quarterly rate.

A Reuters poll published last week predicted the euro zone economy would expand 0.2 this quarter.

Inflation in the currency union was 8.6 last month, official data showed, and while the composite output price index in the PMI survey fell from June39;s 65.3 it remained high at 63.9.

On Thursday the European Central Bank raised interest rates by more than expected, confirming that concerns about runaway inflation now trump growth considerations….