Eurozone business activity nudged up slightly but remained in contractionary territory in October as demand from both home and abroad fell despite firms barely increasing their prices, a top industry survey showed on Thursday.

HCOB's preliminary composite eurozone Purchasing Managers' Index (PMI), compiled by S&P Global, picked up slightly to 49.7 in October from September's 49.6 but remained below the 50 mark separating growth from contraction for a second straight month.

A Reuters poll predicted a bigger lift to 49.8.

"The survey is in line with a weak economic environment with slowing inflation thanks to softening demand," said Bert Colijn at ING.

"The PMI was slightly up thanks to an easing contraction in manufacturing, hardly something to cheer about since the manufacturing sector has been in contraction since late 2022."

Even the more resilient services sector was experiencing a weakening of new orders, he noted.

The composite new business index barely increased from September's eight-month low of 47.7, coming in at 47.8. The new export business reading – which includes trade among eurozone members – was also sub-50.

Business activity in Germany, Europe's largest economy, shrank in October but less steeply than in September, according to its PMI.

In France, the currency union's second-largest economy, the dominant services sector contracted at its sharpest rate in seven months, dragged down by sluggish new orders.

The PMI for Britain, outside the European Union, showed businesses reported their slowest growth in 11 months while hiring shrank for the first time this year as uncertainty ahead of the Labour government's first budget dampened confidence.

Rate cuts eyed

Thursday's PMI surveys were the first major snapshot of economic activity since the European Central Bank (ECB) cut interest rates last week for the third time this year.

The central bank has recognized the deteriorating economic outlook and some policymakers have spoken about the risk of undershooting the 2% inflation target – a remarkable change in tone after a two-year campaign to rein in prices.

"We believe that today's print strengthens the case for the ECB to continue with rate cuts at the December meeting," said Paolo Grignani at Oxford Economics. "At the moment the magnitude of the cut remains uncertain, as it is still early in the quarter and there is a significant amount of data to be released."

Markets have fully priced in another quarter-point rate cut in December, in line with a Reuters poll of economists.

Eurozone government bond yields had edged lower ahead of the numbers and held down as investors received confirmation of the region's sluggish growth.

Growth in the bloc's dominant services industry slipped again and its PMI dipped to 51.2 from 51.4, confounding expectations in the Reuters poll for an increase to 51.5.

That was despite firms only marginally increasing their charges. The services output prices index was just above September's 41-month low at 52.6.

A more than two-year decline in manufacturing activity in the bloc continued although wasn't as deep as in September. The factory PMI rose to 45.9 from 45.0, exceeding poll expectations for a more modest rise to 45.3.

An index measuring output bounced to 45.5 from 44.9.

However, optimism about the year ahead waned. The future output index dropped to a 12-month low of 52.3 from 53.6.