Sterling slipped on Wednesday as data showing a surprise fall in UK industrial output cast a shadow over the economy's growth prospects and reduced the chances for a near-term rise in UK interest rates. The Office for National Statistics said that industrial output contracted by 1.2 percent in February after downwardly revised growth of 0.3 percent in January.
The narrower measure of factory output - which does not include utilities or oil and gas extraction - was also worse than forecast and stalled in February, after January's downwardly revised growth of 0.9 percent. The pound fell over half a cent on the data and later hit a session low at $1.6257, while the euro rose around 40 pips to 87.90 pence before easing to 87.77 to stand up 0.6 percent on the day. The figures point to a weaker rebound in broader economic output in the first quarter of quarter 2011, wobbling market expectations of a May rate hike which had been boosted by a surprisingly robust rise in British services sector activity.
Sterling had earlier been within sight of a 14-month high of $1.6403, and had also traded at its highest levels in 11-months against a broadly weaker yen. It was last 0.1 percent lower on the day against the dollar at $1.6280. Further losses for sterling against the euro may be limited by the risk of the European Central Bank watering down its hawkish rhetoric at its meeting on Thursday, when it is widely expected to raise interest rates by 25 basis points.
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