In line with December, the economy was surprisingly strong at the start of 2024. The flash composite output index climbed from a final year-end 52.1 to 52.5, just above the market consensus, above the 50-expansion threshold and its best print since last June.

However, while conditions in manufacturing were not as weak as in the previous month, growth was again wholly attributable to services. Here the flash sector PMI weighed in at 53.8, up from December's final 53.4 and an 8-month high. In manufacturing, the PMI rose from 46.2 to 47.3, a 9-month peak but still short of the 50 mark.

Aggregate new orders increased moderately despite continued soft overseas demand and this helped employment to post its first gain in five months. Output remains supported by falling backlogs but business expectations for the year ahead improved to their best level since May 2023 - and that despite lengthening vendor delivery times (longest since September 2022) caused by disruptions to traffic in the Red Sea.

To this end, input costs posted their steepest rise since last August. However, output charges remained relatively subdued and charge inflation was the lowest since last October.

Taken at face value, today's update suggests pressure on the BoE to cut interest rates may not be quite as strong as originally thought. Manufacturing remains in the doldrums but the rate of decline seems to be easing and services are holding up well. Moreover, pipeline inflation signals are looking rather more ominous. A reduction in Bank Rate this quarter would now appear all the less likely. The UK's RPI now stands at 6 and the RPI-P at minus 2. Both values show overall economic activity performing broadly in line with forecasts.

Services in December increased a solid 2.5 points to 53.4 with January expected to hold steady. Manufacturing is seen rising to 46.8 versus December's 46.2 which was weaker than expected and down a full point from November. The composite is expected to rise to 52.4 from 52.1 in December.

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.