Lost Souls

Most of Lost Souls was recorded at VIBE Recording Studios in Cheetham Hill, the studio owned by New Order, which Rob Gretton suggested the band rent after the fire. Andy Williams said they locked themselves away there for three to four years. The room had no windows, and the band were robbed. The garage was full of old keyboards, sequencers and drum machines.

Andy Williams said "The Cedar Room" and "Break Me Gently" were the first songs Goodwin sang properly, which ended the search for an outside singer. The album uses samples: a fire burning on "A House", a telephone recording from 3rd Bass's The Cactus Album on "Break Me Gently", and spoken lines from the 1984 film Paris, Texas on "Sea Song". The band have named Talk Talk's Spirit of Eden as a chief influence. Steve Osborne co-produced and mixed the single "Catch the Sun".

The album reached number 16 in the UK, and the three singles, "The Cedar Room" (33), "Catch the Sun" (32) and "The Man Who Told Everything" (32), all charted in the top 40. In July 2000 the band opened for Oasis at Wembley Stadium and Murrayfield. Johnny Marr called the album a vast 3am melancholic beauty brought to life, and he lent the band his black and white Rickenbacker for "Lost Souls" and "Rise". NME gave it 9 out of 10, while Pitchfork's review was mixed and rated it 6.8 out of 10. The record is in the book 1001 Albums You Must Hear Before You Die, and it is dedicated to Gretton.