The UK private sector experienced a slight contraction in November, as the flash composite output index fell to 49.9, 1.9 percentage points below forecast and marking a 13-month low. The outturn ended a year of steady growth. Business confidence weakened significantly, particularly in services, where the PMI stagnated at 50.0. The manufacturing PMI dropped to 48.6, a 9-month low, both below forecast estimates.

Demand conditions softened, with new orders rising at the slowest rate since December 2023. Manufacturers reported a solid fall in demand, reduced capital spending, and increased competition in export markets. Service providers cited client caution following the Autumn Budget. Backlogs were down and hiring freezes meant employment decreased marginally for the second consecutive month.

Inflationary pressures persisted, driven by rising payroll, energy, and technology costs. Services saw the steepest rise in input prices since July, while manufacturers faced elevated transport costs. Despite this, selling price inflation eased, reaching its slowest pace since February 2021.

Business optimism also deteriorated, hitting its lowest mark since December 2022. This was particularly true of services which suffered from concerns over rising payroll costs and investment disincentives. While some hoped clarity from the US elections would boost demand, domestic and geopolitical uncertainties weighed heavily on sentiment.

This update reduces the UK RPI to minus 24 and the RPI-P to minus 34, meaning that economic activity is now quite well behind market expectations.

The consensus looks for the composite flash at 51.8, manufacturing flash at a neutral 50.0, and services flash still showing expansion at 52.1.

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.