Private sector business activity ended the quarter on a very weak note. The flash composite output index dropped from August's final 48.6 to 46.8, nearly 2 points short of the market consensus and its worst reading in 32 months.

Activity rates improved slightly in manufacturing but deteriorated again in services. In the former, the flash sector PMI rose from August's final 43.0, itself a 39-month trough, to 44.2. In services, the index fell from 49.5 to 47.2, a 32-month low.

Aggregate new orders declined for a third consecutive month, albeit by slightly less than in August, as both sectors saw fresh losses. Backlogs similarly extended the downturn that began back in May although, of note, staff shortages were again cited in some areas as limiting capacity. Outside of the Covid lockdown periods, actual employment recorded its steepest decline since October 2009 as services shed staff for the first time in 2023. Business sentiment remained positive overall but still deteriorated to its lowest level since December last year.

Meantime, inflation news was generally positive. Average cost inflation saw its steepest drop so far in 2023 while output prices posted their smallest rise since February 2021.

In sum, the September update provides additional justification for the BoE MPC's decision yesterday to leave Bank Rate at 5.25 percent. It also boosts the chances that the benchmark rate has peaked. To this end, at minus 46 and minus 43 respectively, the UK RPI and RPI-P show overall economic activity now falling well short of market expectations.

Services, at 49.5 in August, fell into sub-50 contraction for the first time since January this year and are not expected to emerge in September where the consensus is 49.0. Manufacturing, which has been in sub-50 contraction for 13 months in a row, is seen holding unchanged at a deeply negative 43.0. The composite is expected to hold steady at 48.5 versus August's 48.6.

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.