Economic activity expanded for a third straight month in January and by slightly more than previously reported. The composite output index climbed to a revised 52.9, now up 0.8 points versus its final reading at year-end and indicative of at least a moderately good month for the overall economy.

However, growth remains wholly attributable to services where the final sector PMI weighed in at 54.3, up from December's final 53.4 and its best performance since last May. New orders increased for a third consecutive month and, while only marginal, employment increased at the fastest pace since July 2023. Reflecting this, business optimism about the year ahead was the strongest since last April.

Input cost inflation decelerated for the first time in three months but falling fuel charges masked another boost from rising wages. Moreover, while output price inflation similarly eased, prices rose on the month.

Taken at face value, today's update suggests only limited pressure on the BoE to cut interest rates and argues against a move as soon as next month. To this end, the UK's RPI now stands at 7 and the RPI-P at exactly zero, both values showing few major surprises in recent economic activity in general.

No revisions are expected, leaving the key composite output index at 52.5, up from December's final 52.1.

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.