Sterling hit a 1-1/2-month low against the dollar on Tuesday after data showed that the UK manufacturing and services sectors remain weak, adding fuel to the view that the economy may be heading for a recession. The UK currency stumbled after domestic manufacturing output fell 0.5 percent in June from May, more than expectations for a flat reading and clocking the fourth month of falls.
Sterling pulled back from session lows after the CIPS/Market services PMI index ticked up to 47.4 last month from a seven-year low of 47.1 in June, although the service sector continued to contract.
Analysts said that the figures, which come before a Bank of England announcement on interest rates on Thursday, did little to change the view of a struggling economy. This will keep the central bank from raising rates, which may keep sterling weak in the coming months, they said. Sterling was down 0.3 percent at $1.9585 by 1428 GMT, having fallen as low as $1.9524 after the output figures to hit its since mid-June. A broad climb in the dollar due to a 0.4 percent slide in oil prices helped to keep the UK currency under pressure against its US counterpart.