* Euro zone business growth rate eased in June

* ECB unlikely to act on Thursday

* British services industry expanded steadily

* Graphic: link.reuters.com/suw32w

(Combines country reports, adds comment)

By Jonathan Cable

LONDON, July 3 (Reuters) – Euro zone firms expanded at their
slowest rate in six months in June while cutting the prices they
charge, surveys showed, signalling business conditions remain
tricky as monetary authorities prepare to give a policy update.

Business activity in France, the euro zone’s second-biggest
economy, shrank at the fastest rate in four months while in
Germany, the largest, the pace of growth slowed.

Service providers also said they cut prices for the 31st
month running to drum up business, although not as sharply as in
May. With June inflation at just 0.5 percent in the euro zone,
the surveys will provide worrying reading for policymakers.

Still, the European Central Bank’s Governing Council is not
likely to take new policy action at its meeting on Thursday,
after cutting interest rates to record lows last month and
unveiling a 400-billion-euro loan programme.

It is instead expected to give more details about the
bank’s existing plans, which the ECB hopes will help entice
commercial banks to lend more freely, particularly to small and
medium-sized companies on the euro zone periphery.

“We are not expecting any further action from the ECB today,
it looks like it has deployed all the policy instruments. (So)
we will wait for the actual implementation later in the year,”
said Tom Rogers at Oxford Economics.

Markit’s Composite final June Purchasing Managers’ Index
(PMI) for the euro zone, based on surveys of thousands of
companies across the region and a good indicator of growth, was
in line with a preliminary reading of 52.8, down from May’s
53.5.

The PMI for the euro zone’s dominant service industry fell
to 52.8 from 53.2, also in line with an earlier flash reading
and above the 50 mark that separates growth from contraction.

A resurgence in Spain and Italy supported German expansion
but France again provided the biggest drag on the bloc’s
tentative recovery.

French business activity contracted for the second month in
a row, casting fresh doubt on the strength of the 2 trillion
euro economy.

“We are looking at quarterly growth in France possibly being
flat again or very weak and that has ramifications for the euro
zone,” Rogers said.

Euro zone retail sales were flat in May, separate data
showed earlier on Thursday, giving further evidence of a lack of
momentum in the bloc’s economy.

It was a different story across the channel in Britain,
whose services industry expanded steadily, suggesting the
economy grew robustly throughout the first half of 2014 and
possibly pointing to an interest rate hike this year.

While Bank of England officials have recently given mixed
signals on the timing of a potential interest rate rise, the BoE
is widely expected to be the first major central bank to begin
hiking borrowing costs.

They say markets have underestimated the likelihood of a
move in 2014, but also think more slack needs to be used up
before that happens.

“Rate hikes rising up the agenda has the potential to cause
some minor wobbles in sentiment indicators over the next few
months, but we do not expect a very small interest rate hike to
derail what is looking like an increasingly solid recovery,”
said Rob Wood at Berenberg Bank.

(Additional reporting by Ana Nicolaci da Costa, editing by John
Stonestreet)