The pound traded near a five-month low of $1.33 on Friday, weighed down by worries over Brexit and signs of sustained weakness in Britain's economy. Sterling had been one of the best-performing currencies in 2018, but weak economic data and a recent surge in the dollar have erased all of its gains for this year. Markets have radically scaled back expectations for when and how much the Bank of England will raise interest rates as economic growth slows. Data on Friday showed GDP grew just 0.1 percent in the first quarter, keeping the pound under pressure.
"The overall picture remains one of slowing economic activity," said David Cheetham, chief market analyst at XTB. Barclays, in a note to clients, cut its growth forecast for 2018 to 1.3 percent from 1.4 percent. At 1430 GMT, the pound was down 0.5 percent at $1.3318 as the dollar gained broadly.
Weak construction and retail data mean investors are now only pricing in a one-in-three chance of the BoE raising borrowing costs in August, the next time it updates its economic forecasts. Meanwhile, concerns are growing about the sort of relationship Britain can agree with the EU before it exits the bloc in March 2019 and that is also impacting sterling.
BoE Governor Mark Carney said on Thursday the central bank could pump more stimulus into Britain's economy if this year's Brexit negotiations resulted in a bad deal. He said two days earlier that the Brexit vote has cost each UK household 900 pounds. A Reuters poll published on Wednesday suggested a one-in-five chance of a disorderly Brexit. Analysts at CMC Markets and Commerzbank, in notes to clients, predicted the pound would fall toward $1.3300 in the short term.
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