LONDON: Sterling sank to a 1-year below $1.59 on Wednesday after a survey of the UK services sector added to signs that the British economy - previously one of Europe's few bright spots - is coming off the boil.
The pound fell as far as $1.5869 in the hour after the purchasing managers' survey, whose main index fell by more than two points to 56.2, still indicating expansion but at a lesser pace than previously.
Compiler Markit's composite indicator, taking in equivalent surveys earlier this week on manufacturing and construction, suggested economic growth would slow to 0.5 percent in the fourth quarter from 0.7 percent in the third.
That, and further indications in the data of downward pressure on prices, add to the growing doubts about how soon the Bank of England will raise interest rates next year.
"Although the index reading is still relatively strong, it's another kick in the teeth for GBP bulls," said Alex Edwards, head of the corporate desk at online currency service UKForex.
The pound was also 0.2 percent weaker on the day against the euro at 78.56 pence per euro compared to 78.46 before the figures.
Prices of British government bond futures pared losses by about 10 ticks after the survey to show a fall of 14 ticks on the day to 115.18. The spread in yields between British and German 10-year government debt tightened by around one basis point to 142.1 basis points.
Propped up by an economy that is performing better than most of its European peers, sterling had done better than the euro and yen against the dollar over the past week.
But the market has grown increasingly doubtful about the prospect of that brighter economic outlook showing up in workers' wages, inflation and conseqentially higher interest rates any time soon.
Expectations for higher rates have been pushed out to the end of next year and a more dovish message from the Bank of England next week, worrying about the lack of wage growth despite falling unemployment, are likely to put more pressure on the pound.
"The pound has been a bit more resistant to the dollar rally in the past week and this morning's fall is probably as much of a reflection of that as anything else," said a dealer with one London-based bank.
"I'm not sure there will be much support any time soon from the data, and that may point to a more serious problem."
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