Sterling fell to a two-month low against the dollar on Tuesday, stung by data showing the economy contracted more than expected in the third quarter which stoked concerns that the UK is poised for an anaemic recovery. Britain's economy shrank by 0.2 percent in the three months to September, more than the 0.1 percent decline expected, as stronger construction output was offset by a weakening in the services and industrial sectors.
This leaves Britain officially stuck in recession, unlike most of its major trading partners, although the reading was above the previous estimate of a 0.3 percent GDP contraction. "Today's UK GDP numbers were disappointing," said Simon Derrick, head of currency research at Bank of New York Mellon.
"This matters because it reduces the argument for higher interest rates and it makes the argument for how the government will pay off its public sector borrowing needs that much harder to make," he said. The weak data pushed sterling as low as $1.5953 against the dollar, its weakest since mid-October to take it below its 200-day moving average, which currently stands at around $1.6010.
By 1512 GMT, the pound was down 0.5 percent on the day at $1.5956. The euro climbed 0.4 percent against the UK currency to 89.38 pence, having hit a high of 89.45 pence, its firmest in nearly a week. "The UK economy is by no means fully out of the woods and still faces a very challenging economic and financial environment," said Howard Archer, economist at IHS Global Insight.