The economy had a decent month in May but growth still fell short of both expectations and April's rate. The flash composite output index stood at 53.9, some 0.7 points below the market consensus and a full point below April's final 54.9.

However, as seen right across Europe, the overall expansion was again solely attributable to services where, at 55.1, the flash sector PMI was well above the 50-expansion threshold albeit down on April's final 55.9. By contrast, its manufacturing counterpart fell to 46.9, down from the previous period's 47.8 and a 5-month low. Manufacturing output (46.9 after 47.8) continued to contract and at the fastest rate in five months.

Growth of aggregate new orders was the slowest since February with strength in services compromised by weakness in manufacturing. For the latter, Brexit issues were again cited as a factor weighing on demand. Overall employment was up but the rate of job creation was close to zero and well below the average seen in 2022. Backlogs declined by the most so far this year with the fall in manufacturing the sharpest in three years. Against this backdrop, business confidence about the year ahead deteriorated in both sectors and, in the aggregate, was the weakest since February.

Input cost inflation continued to ease as manufacturers reported the steepest drop in more than seven years. However, faster wage growth saw their service sector counterpart accelerate and average output prices climbed steeply.

The May update underlines the problems facing manufacturing but, for now, inflation pressures in services will probably leave the BoE MPC biased towards another hike in Bank Rate in June. The UK's ECDI now stands at minus 19 and the ECDI-P at minus 18. In other words, overall economic activity is running modestly behind market expectations.

Services, at 54.9 in April, have held solidly above 50 the last three months with 55.5 the expectation for May. Manufacturing, which has been in sub-50 contraction for nine months in a row, is seen at 47.7.

The flash Composite Purchasing Managers’ Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of the manufacturing and service sectors of the economy, around 650 companies in each case. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs and prices are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The survey is produced by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' surveys, investors will know what the economic backdrop is for the various markets. The flash PMIs are particularly closely watched as they provide a wide ranging look at economic developments and some of the most up to date information available. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.