Sterling fell against the dollar on Friday as an unhealthy combination of slowing growth and rising inflation kept investors bearish on the outlook for the UK economy. Better than expected UK retail sales and factory orders data the previous session had supported the pound, taking it to three-week highs versus the dollar.
But economists said that even though the numbers beat forecasts they still painted a pretty lacklustre picture for the UK economy and thus for the pound. "Any sterling strength will be short-lived and it is likely to stay under pressure as news is on the negative side," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.
"Although much of this bad news is priced in, the extent to which things could deteriorate could have a negative impact." Stannard added that Britain's ruling Labour Party's loss of a mid-term parliamentary seat to the Conservatives on Friday could add to political uncertainty and also damage the pound. By 0729 GMT the pound was down 0.2 percent at $1.9763. The euro was up 0.1 pence at 79.47 pence.
Investors will look for more clues on the extent of the slowdown in the UK economy from the second release of first quarter GDP data at 0830 GMT. Analysts are forecasting a 0.4 percent rise on the quarter and 2.5 percent on the year.
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