Sterling rose against the dollar and steadied against the euro on Wednesday, recovering from brief losses sustained after data showed Britain's economy grew at its weakest pace in nearly two years in the first quarter. The second reading of UK first quarter GDP data showed a rise of 0.5 percent on the quarter, below the initial estimate of an increase of 0.6 percent but in line with forecasts. The impact of the growth data was muted as recent weak consumer and manufacturing data have already hit sterling, analysts said, increasing expectations the next move in UK interest rates will be down from current rates of 4.75 percent.
"Although not a leading indicator, the first quarter 2005 GDP performance should further dampen expectations for additional rate hikes while backing our call for a rate cut before the end of the current year," said Lorenzo Codogno, co-head of European economics at Bank of America in London, in a client note.
Sterling fell to the day's lows of $1.8249 after the data, close to 6-1/2 month lows of $1.8230 set last week. But it recovered to $1.8311 by 1325 GMT, up 0.2 percent from the US close, tracking a recovery in euro/dollar.
The pound was a little off earlier lows of 68.88 pence, also not far from seven-week lows set last week. The pound was at 100.3 on its trade-weighted index, matching recent lows.
More indicators on the health of British manufacturing will come on Thursday, when the Confederation of British Industry issues its May industrial trends survey and quarterly forecast.