UK private sector activity gathered momentum in August, posting its strongest expansion in a year, according to the latest release. The composite PMI rose to 53.0 from 51.5, signalling solid growth for a fourth consecutive month. Services was the standout performer, with business activity climbing to a 12-month high of 53.6, buoyed by robust domestic and export demand. Manufacturing, however, continued to contract, with output slipping to 47.3 and new orders falling sharply amid weak global demand and US tariff uncertainty.

New business volumes grew at the fastest pace since October 2024, led by services, but job creation remained elusive. Employment fell for the eleventh month running, as firms restructured workforces under cost pressures. Inflationary forces re-emerged, with input costs rising at the quickest pace since May, driven by higher National Insurance, food, and freight charges. Service providers in particular passed on costs to customers, fuelling strong price growth, while manufacturers struggled to raise prices amid subdued demand.

Despite labour market weakness and rising costs, business confidence improved, reaching its highest since October 2024. Service firms pointed to investment plans and stronger consumer spending, while manufacturers expressed cautious optimism about a future rebound.

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.