Latest economic data has a positive effect on trading

Published on Friday 7 August 2009 21:41

POSITIVE economic data on both sides of the Atlantic fuelled recovery hopes further yesterday, boosting UK markets.

Unemployment in the US unexpectedly fell in July, reversing a trend of growing joblessness, while producer price index (PPI) figures in the UK sparked suggestions that headline consumer price inflation is set to fall sharply.

In the US, figures from the Bureau of Labour Statistics showed that the rate of unemployment dropped marginally, from 9.5 per cent in June to 9.4 per cent – the first fall in 15 months.

Economists had expected the latest figures to continue with the trend of growing unemployment, possibly even going above 10 per cent.

Employers cut 247,000 jobs in July, the figures show – the prediction was 320,000.The numbers were significantly lower than in the first few months of 2009.

In the UK, factory-gate prices fell at the sharpest rate in almost eight years in July and input prices dropped at the fastest pace since 1986.

Yesterday's figures come after the Bank of England decided to pump an extra 50 billion into the financial system to shore up the economy, and reinforce policymakers' view that weak activity will dampen inflation for some time.

The Office for National Statistics said producer output prices fell 1.3 per cent on the year in July, the lowest annual rate since November 2001, albeit above forecasts for a 1.6 per cent drop.

Input prices fell by a bigger-than-expected 12.2 per cent on the year, the largest decrease since September 1986. The declines were said to be mainly due to sharply lower oil prices.

Hetal Mehta, at the Ernst & Young ITEM Club, said: "When facing such strong economic headwinds, firms need to price competitively in both domestic and international markets, and we expect this to continue to feed through to consumer prices, pushing CPI inflation further below the 2 per cent target."

The FTSE closed 41 points higher at 4,731.6.