[BillPaay]

Q3-2009 got off to an encouraging start, with a solid rise in UK industrial production in July, but the pace of improvement is expected to have slowed in August following lacklustre manufacturing PMI data over the summer. On the services side, Monday's September PMI confirmed a strong run in the sector in Q3, showing a rise in services activity of some 0.6-0.7% q/q. But the Q2 outcome was somewhat worse than suggested by the preceding PMI services data, so it may be unwise to read too much into the survey data. Nevertheless, a further pickup in industrial production in August would support expectation that the economy pulled out of recession in Q3-2009 (GDP data is due for release on 23 October). Ahead of the official data, the NIESR will release its assessment for September. If industrial production continued to do well in August, the National Institute is likely to estimate that GDP rose by a respectable 0.2-0.4% q/q in Q3, which would be the first quarter of positive growth since Q1-2008.

The British pound (GBP) remains under pressure given rate expectations. Fundamentally, most of the negatives for the GBP are priced in, but fiscal concerns and the Bank of England's (BoE's) quantitative easing policy argue for GBP underperformance near-term. However, GBP-USD is expected to edge higher towards year-end on continued USD weakness rather than positive economic fundamentals in the UK. The technical picture for GBP-USD looks broadly consolidative, suggesting more range trading.