The economy looks to have had a decent May. However, while at 52.8, the flash composite output index was again well above the 50-expansion threshold, its was also down from April's final 54.1 and more than a full point short of the market consensus.

The headline decline was attributable to slower growth in services. Here, the flash sector PMI eased from April's final 55.0, itself an 11-month peak, to 52.9. By contrast, its manufacturing counterpart rose from 49.1 to 51.3, back above the 50 mark and a 22-month peak. Output (52.7) saw a 25-month high.

Aggregate new orders increased for a sixth straight month but only modestly in both sectors and by less than at the start of the quarter. Overall employment followed a similar pattern although, of note, headcount in manufacturing declined by the least in 20 months. Some firms again reported a shortage of available workers. Business expectations for the year remained upbeat but while manufacturing posted its best reading since February 2022, services saw a 4-month low.

Meantime, input cost inflation decelerated to its lowest mark in seven months and, significantly, within this, cost pressures in services were the weakest in three years. Output prices continued to rise but by less than in April and modestly enough to reduce the inflation rate to its lowest level since February 2021. Again, the fall here was mainly due to services.

Consequently, the flash May results should go down well at the BoE. Signs of diminishing inflation pressures in the key services area must bolster the likelihood of a cut in Bank Rate during the summer months. A move as soon as June clearly remains a possibility but after yesterday's inflation update, the August MPC meeting would appear more likely. The UK RPI now stands at 5 and RPI-P at minus 1. Neither reading is far enough from zero to signal any meaningful deviation in overall economic activity from market forecasts.

Manufacturing edged higher in April to 49.1 with May's consensus at 49.4. Services growth picked up by nearly 2 points in April to 55.0 for the largest rise in 11 months. May's consensus is a slight dip back to 54.8. May's composite is expected to hold steady at 54.0 from April's 54.1.

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.