European business activity struck a six-year high in June, a survey showed on Wednesday, but price rises could prompt faster interest rate increases in the eurozone although economic growth there may be peaking.
Growth in the eurozone services sector reached its highest since June of 2000, a boom year, according to the survey by NTC Research which also reported that firms raised prices faster than at any time since November 2000.
The RBS/NTC survey's headline activity index rose to 60.7 in June from 58.7 in May, well above the 50 divide between growth and contraction and beating the consensus forecast of 59.0.
That, coupled with a sister survey on Monday which showed a similar peak in the manufacturing industry, encouraged further speculation about the speed at which the European Central Bank will raise credit costs to tame inflation. Some added spark may have come from the soccer World Cup, which began in June and ends in Berlin on Sunday.
Economist Luigi Speranza at BNP Paribas said the latest news on the European economy was "exceptionally strong". "We believe it shows the ECB is getting a bit behind at this point. There is a case for quickening the pace of tightening," Speranza said.
The ECB meets on Thursday but most people are still betting on an August rate rise, which would be the fourth since the ECB began hiking in December from a historic low of 2.0 percent. However, some feel it might come on August 3 while others expect a move at the ECB's second policy meeting of the month on August 31.
A Reuters poll last week showed economists see only a 1-in-3 chance the ECB will raise rates on August 3 but money markets are pricing in around a 60 percent chance. A similar US survey will be published on Thursday at 1400 GMT and the main index is forecast to ease to 59.0 from 60.1.
The British survey showed the services sector expanded at a slightly weaker than expected pace last month, but it remains in good shape and could help boost growth in the second quarter.
The headline business activity index eased to 58.7 in June from 59.2 in May. Economists said the results did not alter the outlook for UK rates, which the Bank of England looks sure to keep at 4.5 percent on Thursday and for some months to come.
The European Commission forecasts eurozone growth will be around 2.1 percent this year, a modest rate compared with other big economic regions but far better than 1.3 percent in 2005. Chris Williamson, chief economist at the NTC Research, said he believed the economic pace lately may be as good as it gets.
Williamson said the World Cup, which boosts confidence as well as consumer sales, had surely given the economy a shot in the arm but this would start to wear off after Sunday.
"There are good prospects for the coming months but we do expect these numbers to have peaked, reflecting that World Cup effect," Williamson said, adding that an index of what firms expect in the months head had hit a nine-month low in June.
The latest surveys of the manufacturing and services sectors suggest that the euro zone's second-quarter performance may have been stronger than was expected after a quarterly growth rate of 0.6 percent in the first quarter of the year.
NTC's Williamson predicted a 0.8 percent rise in the second quarter versus the first three months of the year but noted that June's figures may have got an exceptional boost from World Cup-host Germany.
Investment banks have said the World Cup may generate a lasting feel-good factor in the victorious country - only euro zone countries remain in the competition - as in 1998 when France won and consumer confidence hit a record. It might not be decisive in itself, but if the timing is right it can add a lot of throttle, said Charles Kalshoven, author of a "Soccernomics" report for Dutch bank ABN Amro.