Strengthening Economic Data for UK, U.S. Economies

By: Lloyds_TSB

After the recent spate of weak economic data, this week began on a more positive note, with yesterday's service sector reports in the UK and US both surprising on the upside. The UK CIPS services sector PMI was particularly firm, with the index rising from 54.1 in August to 55.3 in September - its strongest pace of expansion in two years. That conditions in UK services are improving was also signalled in the latest financial services report from the Confederation of British Industry, which showed confidence amongst UK financial services firms rising for the first time since the start of the credit crisis in 2007.

Similarly, the US non-manufacturing ISM also came in better-thanexpected, with the headline index rising from 48.4 in August to 50.9 last month. It was the first time this index has been above the 50 level that separates expansion from contraction since August 2008. Given the flood of liquidity that has been injected into western financial markets, and the government support schemes that have aided the sector, it is perhaps not surprising that financial services are helping to underpin the recoveries in the US and UK.

Attention today looks set to shift away from services towards industry, with the UK industrial production figures for August due this morning. Given the weakness of the CIPS manufacturing PMI - the manufacturing PMI dropped back just below 50 in August - we expect industrial production to have been broadly unchanged on the month. Nevertheless, after a strong rise in July, a fall cannot be ruled out. Although we look for a weak monthly outturn, the annual rate of manufacturing production is expected to have posted a further improvement, consistent with the increase in the expected output balance of the CBI survey - see chart below. This, however, is largely due to base effects associated with the falls in production during summer 2008.

Trevor Williams, Chief Economist, Corporate Markets

For more information: Emile Abu-Shakra Manager, Media Relations Lloyds TSB Group Media Relations Tel 020 7356 1878 http://www.lloydstsbcorporatemarkets.com/

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