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Sterling sinks after surprise UK figures

Tuesday, July 08 11:19:49

Sterling fell today after an unexpected dip in British factory and industrial output prompted some of those who have benefited from the pound's surge in the past month to cash in some of that gain.

Factory output dropped by 1.3 percent in May on the month, the Office for National Statistics said, its biggest fall since January 2013 and in contrast to economists' forecasts for a 0.4 percent increase.

In annual terms, however, output was still up 3.7 percent and analysts said the broad picture of a robust economic recovery that has driven sterling 14 percent higher in just over a year was still in place.

The pound fell against the dollar to as low as $1.7085 after the data, from $1.7137 beforehand, though it then recovered slightly to trade at around $1.7097, down 0.2 percent on the day.

"The key question is to what extent the data should be seen as a precursor of potential loss of growth momentum further down the road. We do not think that is the case, however," said Valentin Marinov, a currency strategist at Citigroup.

Against the euro, sterling weakened to 79.59 pence per euro from 79.35 pence, before strengthening a little to 79.52 pence.

The decline in manufacturing output comes after the sector recorded its strongest growth in nearly four years in the first quarter, and goes against the grain of generally robust private-sector surveys.

The latest update to growth forecasts from the respected NIESR thinktank, expected later on Tuesday, should also provide grist for the mill.

The Bank of England forecast in May that Britain's economic growth would start to slow in the second half of this year, though more recently Governor Mark Carney said he had seen little sign that this was about to happen.

"Taken as a whole the UK data still points at quite a resilient, robust recovery. Sentiment indicators - manufacturing PMIs - seem to suggest that the drop we saw in May need not be sustained and could actually be reversed before long," said Marinov.

Industrial output - which makes up 15 percent of the economy - also dropped by 0.7 percent on the month in May, its biggest fall since August 2013, causing annual growth to slow to 2.3 percent.