Overall business activity performed much as expected this month. At 52.7, the flash composite output index was just 0.1 point above the market consensus and up 0.4 points versus its final print in June. The latest outturn was only a 2-month high but extended the unbroken sequence of positive growth readings to nine months.

The monthly headline gain reflected fresh progress in both manufacturing and services. For the former, the sector PMI weighed in at 51.8, up from June's final 50.9 and a 2-year peak. In large part, this was attributable to a jump in output (sub-index 54.1) which claimed a 29-month high. Its services counterpart made more limited ground, rising from 52.1 to 52.4.

Aggregate new orders increased by the most since April 2023 on the back of gains in both domestic and overseas demand. Employment growth was also the strongest in more than a year with headcount in manufacturing stabilising after 21 months of contraction. Following June's setback, business confidence posted its sharpest improvement in 15 months and was only slightly below the 2-year high seen in February.

Meantime, input costs climbed by the most in 15 months due to higher transport charges but the inflation rate was still among the softest seen since the beginning of 2021. Moreover, output price inflation slowed to its weakest rate since February 2021, driven by a smaller increase in services companies. That said, the rate of inflation was still above its long-run trend.

In sum, the July results suggest that the economy made a solid start to the current quarter, potentially easing pressure on the BoE MPC to cut Bank Rate in August. To be sure, today's update increases the likelihood of another split vote next week. More generally, it also boosts the UK's RPI and RPI-P but, at minus 20 and minus 17 respectively, both measures still show overall economic activity falling short of market forecasts.

Manufacturing, at 50.9 in June, has held over the 50 line in three of the last four reports with July seen at 51.2. Services, at 52.1 in June, has held over 50 for the last eight reports with July's consensus at 52.5. The composite is expected to rise to 52.6 from 52.3.

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.