The UK private sector saw marginal growth in January, with the composite index reaching a three-month high of 50.9, up from 50.4 in December. Growth was driven by modest gains in the service sector (51.2), slightly exceeding expectations while manufacturing remained in contraction (48.2), though the pace of decline eased significantly. Businesses attributed higher activity to completing backlogs and successful marketing efforts, yet new orders fell at the fastest rate since October 2023, highlighting subdued demand.

Employment levels declined for the fourth consecutive month as firms faced rising costs. Hiring freezes and non-replacement of leavers were common responses to escalating payroll expenses, including anticipated national insurance increases. This reflects continued economic strain, with business confidence dipping to its lowest since December 2022.

Cost pressures intensified, with input price inflation hitting a 20-month high due to rising salaries, energy costs, and imported raw material prices. Firms passed on these costs, leading to the fastest increase in selling prices since mid-2023.

Although some firms remain optimistic about 2025, citing new products, technology investments, and overseas expansion, many are wary of unfavourable economic conditions and reduced client spending, suggesting a challenging year ahead for the UK economy. The latest update leaves the RPI at minus 26 and the RPI-P at minus 31, meaning that economic activities remain well behind market expectations.

The manufacturing flash is expected at 47.0 and services at 51.0.

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.