Sterling hits seven-month low

Sterling tumbled to seven-month lows on a trade-weighted basis on Tuesday, extending losses of recent weeks as an unexpected fall in UK factory output fanned expectations domestic interest rates might not rise much more.
The pound hit a 5-1/2 month low on the euro and a 3-1/2 month trough versus the dollar after UK data showed manufacturing output fell 0.2 percent in July from the previous month, compared with a forecast for a rise of 0.5 percent.
This added to data by the British Retail Consortium out late on Monday showing UK retail sales growth slowed in August to its weakest this year.
"The BRC data raised concerns that domestic consumption momentum was weak in August. Sterling was hit first thing in the morning by the BRC data. Then there was another blow from the output data," said Kristjan Kasikov, currency strategist at Calyon.
"This gives further ammunition for the Bank of England to leave rates unchanged, not just this week but probably in the coming quarter."
Sterling's trade-weighted index, which has a euro weighting of 64.8 percent, a dollar weighting of 16.5 percent and a yen one of 7.0 percent, tumbled to its lowest since January 30, having lost more than three percent since early August.
By 1355 GMT the pound had fallen as low as 68.18 pence per euro, down two thirds of a percent on the day. Against the dollar it also hit a 3-1/2 month low of $1.7711, down half a percent on the day.
The Bank of England starts its two-day monetary policy meeting on Wednesday. It is expected to leave interest rates unchanged at 4.75 percent on Thursday after five quarter-point rate rises since last November.
"It's now increasingly apparent that all sectors of the economy are entering a soft patch. Today's number underlines the view that the Bank of England will remain on hold in September, but recent across the board weakness raises the question as to whether rates will head higher from the current 4.75 percent," said Gavin Redknap, economist at Standard Chartered.
The British Retail Consortium said late on Monday the value of sales, measured on a like-for-like basis, was up just 0.6 percent on a year earlier, down from the 1.8 percent annual growth in July, partly hit by wet weather and the timing of a public holiday.