In line with continental Europe, business activity slowed by more than expected in July. The flash composite output index stood at 50.7, well short of the market consensus and more than two points below June's final 52.8. While on the right side of the 50-expansion threshold, the latest reading signalled the smallest increase in total output in half a year.

Activity rates in both manufacturing and services decelerated. In the former, at 45.0 after June's final 46.5, the flash sector PMI signalled the worst performance in some 38 months, with output (46.5) hitting a 7-month low. Growth in services at least remained positive but, at 51.5, the flash sector PMI was fully 2.2 points short of June's final mark and the weakest in six months.

Aggregate new orders stagnated, ending a 5-month period of expansion as a small increase in services was offset by another decline in manufacturing. Indeed, total export orders decreased at the steepest pace since November 2022. Backlogs also fell at the fastest rate since June 2020 and although headcount rose for a fourth successive month, the rate of job creation eased versus June. However, weak demand contributed towards another improvement in vendor performance and supplier lead times shortened for a sixth successive month and by the most on record. Even so, business sentiment about the year ahead worsened for a third straight month, mainly due to weaker business optimism in services.

Average costs again increased sharply but the inflation rate continued to decline and touched its lowest mark since February 2021. However, of note, wage pressures were largely responsible for another sharp increase in service sector costs and this will not be wasted on the BoE. Indeed, higher wages lay behind another sizeable increase in average prices charged. That said, base effects saw aggregate output price inflation ease further to its lowest rate since February 2021.

The July data suggest that the economy continues to essentially flatline, with growth in services offset by declining output in manufacturing. For the BoE, it will be the former that dominates its policy decision next week and, until inflation pressures in services begin to recede, the bank will retain a tightening bias. The UK's ECDI now stands at minus 15, showing a limited degree of overall underperformance but, at 2, the ECDI-P indicates real economic activity evolving much as expected.

Consensus for July's composite is 52.2 versus 52.8 in June. Services, at 53.7 in June, have held safely above 50 the last five months with 53.0 the expectation for July. Manufacturing, which has been in sub-50 contraction for the last eleven months, is seen 46.0 versus 46.5.

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.