The UK private sector saw very modest growth in December, with the composite PMI holding steady at 50.5, some 0.5 points above the 50-growth threshold and the consensus forecast. While services showed a slight uptick in activity (51.4), the manufacturing sector (47.3) remained a drag, plunging to an 11-month low. Weak consumer confidence, tighter budgets, and declining non-essential spending led to the first fall in new orders in over a year, particularly steep in manufacturing, where export sales plummeted due to European demand challenges and customer destocking.

Employment fell at the fastest rate in nearly four years, driven by rising costs and restructuring efforts. Services saw notable job cuts, linked to voluntary leavers not being replaced, rising National Insurance contributions, and workforce reductions to mitigate cost pressures.

Inflationary pressures intensified, with input costs rising at their fastest rate since April. Manufacturers faced escalating transport and raw material costs, while services passed on higher salary and operational costs to customers, leading to the steepest price increases in nine months.

Business optimism waned, reaching its lowest point in a year, as firms braced for tax hikes, competitive threats, and subdued demand. The latest update takes the RPI to minus 5 and the RPI-P to minus 14. This means that economic activity in general is slightly behind market estimates.

The headline composite index is seen slipping from November's final 50.5 to 50.0, matching expansion threshold. Manufacturing and services are both seen unchanged at 48.0 and 50.8 respectively.

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.