The economy had a surprisingly respectable end to 2023. At a final 52.1, the flash composite output index was revised up 0.4 points to stand 1.4 points stronger than its final November mark and more than 2 points above the 50-expansion threshold.

The headline revision reflected a more robust service sector where the flash PMI was boosted from 52.7 to 53.4, its best reading in half a year. New orders rose again despite subdued overseas demand with some firms noting stronger consumer spending on leisure and hospitality services. Probably as a result, business optimism improved to its highest level since last May although firms were reluctant to add to headcount due to rising wages and staffing numbers posted a third dip in the last four months.

Indeed, input cost inflation accelerated to a 3-month peak which, in turn, contributed to the steepest increase in output prices since last July.

Taken at face value, today's update suggests the UK economy probably avoided recession last year. Indeed, the improvement in domestic demand even bodes cautiously well for the start of this year. However, more importantly for the BoE, the final December data warn against any complacency over inflation and so strengthen the case for no early cut in Bank Rate. Today's report also lifts the UK RPI to minus 6 and the RPI-P to minus 5, both values showing overall economic activity lagging market expectations but only marginally.

No revisions are expected leaving the composite output index at 51.7, up from November's final 50.9, and the services PMI at 52.7, up from 50.9.

The Services Purchasing Managers' Index (PMI) provides an estimate of service sector business activity for the preceding month by using information obtained from a representative sector survey incorporating transport and communication, financial intermediation, business services, personal services, computing and IT and hotels and restaurants. Results 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 data are compiled by the Chartered Institute of Purchasing and Supply (CIPS) and 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 ISM non-manufacturing index in the U.S. and the S&P Global PMIs elsewhere, investors will know what the economic backdrop is for the various markets. 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.

The S&P Global PMI services data give a detailed look at the services sector, how busy it is and where things are headed. The indexes are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.