The Reuters Eurozone Purchasing Managers' Index slipped again in July but economists said the manufacturing economy remains strong and inflation a threat, so the European Central Bank will raise interest rates after the summer.

The PMI, compiled from a survey of manufacturers in six euro zone countries, fell slightly short of forecasts at 59.2 in July. Economists had expected it to be unchanged from the June level of 59.5 rather than continuing a drift from its record high of 60.7 in April. But any reading over 50 signals growth and the economists pointed particularly to the separate Eurozone Prices Index, which measures manufacturers' costs. It fell in July to 72.0 from 72.7 in June and a record high of 76.7 in May but was still the sixth-highest reading in the survey's 38-month history.

"It's a bit slower than the previous month but all in all it shows that we are still on a very positive economic trend in Germany and in the euro zone," said Juergen Michels at Sal Oppenheim in Cologne. "With this positive sentiment the ECB can afford to take two further interest rate hikes. We expect the first step in September by 25 basis points and an additional step at the end of the year."

Inflation is a growing worry for the ECB, which meets tomorrow to discuss interest rates. Eurozone inflation jumped to 2.4 per cent in June, (although it is considerably higher in Ireland) its highest rate since the euro was created at the start of last year and well above the ECB's medium-term limit of 2.0 per cent.

Much of the blame lies with another surge in oil prices in April and May.

The ECB's benchmark interest rate lies at 4.25 per cent. But after a 50 basis point rise in June most economists expect the ECB to hold fire until at least August 31st , if not the only meeting the following month on September 14th. Weaker than expected June M3 money supply figures have added to expectations that the ECB will not move immediately.