Sterling set for first weekly fall in four as data disappoints

LONDON: Sterling faced its first week of falls in four on Friday as data showed an unexpected slide in British industrial output, clouding the outlook for the UK's economy as it prepares to leave the European Union.

In the first full week of trading since Prime Minister Theresa May formally triggered Brexit, the pound sank against the dollar and the euro in moves analysts said were also part of an investor reappraisal of the Bank of England's policy path.

Sterling has been propped up in recent weeks by expectations that the BoE might consider a rate rise to rein in inflation but comments by policymakers this week - in particular Gertjan Vlieghe - have played down that prospect.

"The data is certainly not a sterling positive but the

key point here is that this past week we've heard...there's less pressure on the Bank of England to hike rates," said Sam Lynton-Brown, a currency strategist at BNP Paribas.

The pound slipped to a one-week low of $1.2419 in the wake of the data, down 0.4 percent on the day. It is set for a 1.2 percent weekly fall, its first decline in four weeks.

It was also 0.3 percent lower at 85.56 pence per euro on the day, having shed around 1 percent on the week - also its worst period in four weeks.

Industrial output fell 0.7 percent in February, worse than all forecasts in a Reuters poll of economists that pointed to a 0.2 percent increase following a 0.3 percent decline in January.

Separate figures showed Britain's goods trade deficit unexpectedly touched a five-month high in February and January's deficit was revised upwards too, the Office for National Statistics said.

British government bond yields also fell slightly in the wake of the data, with 10-year yields 2 basis points lower on the day at 1.07 percent.

RBC's global head of FX strategy, Elsa Lignos, said in a note that the data was important because it was the last hard input into first quarter growth data, a preliminary estimate of which is due on April 28.

Bank of England rate-setter Vlieghe said earlier this week that a consumer slowdown in Britain was under way and underscored the need for caution on interest rates because the trend could worsen.

Governor Mark Carney added on Friday that there are some signs of strength in consumer demand coming off and that the BoE would monitor the situation.