The economy was surprisingly strong at the end of the year. The flash composite output index moved up from November's final 50.7 to 51.7, a six-month high and well above the market consensus.

However, growth was wholly attributable to services, where the flash sector PMI weighed in at 52.7, up from November's final 50.9 and more than two points above the market consensus. By contrast, its manufacturing counterpart declined from 47.2 to 46.4, only a two-month low but still well into recession territory.

New orders increased for the first time since June, albeit only marginally and only in services. The increase here reflected stronger domestic demand as exports sales continued to decrease. Backlogs also fell, but at the slowest pace since June. Headcount was also trimmed. Even so, business expectations for the year ahead edged up to their highest mark since September.

Inflation developments were relatively robust. A sharp rise in operating expenses in services lay behind overall input cost inflation, climbing to its highest rate since August. In turn, aggregate output charges also rose although across the quarter, charge inflation was unchanged.

Taken at face value, today's update suggests the UK economy has avoided recession this year. Indeed, the improvement in domestic demand even bodes cautiously well for the start of 2024. Combined with further signs of sticky inflation in services, the December report increases the likelihood that the first cut in Bank Rate will be deferred until at least the latter stages of the second quarter. The UK's RPI remains at minus 25 A and the RPI-P at minus 33. Both values show overall economic activity lagging some way behind market expectations.

Services in November emerged from three months of contraction, rising 1.4 points to 50.9 with December seen at 51.1. Manufacturing is seen at 47.5 versus November's 47.2 which was better than expected and up from October's 44.8. The composite is expected to rise to 51.0 from 50.7 in November.

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.