Sterling close to 1-week low as data shows cooling economy

LONDON: Sterling steadied close to a one-week low on Wednesday, as a survey of Britain's services businesses added to a string of weak-looking data that could deter the Bank of England from raising interest rates for the first time in 10 years.

A number of central bank policymakers, including Governor Mark Carney, have spoken in favour of soon reversing last year's interest rate cut, which followed Britain's vote to leave the European Union.

The hawkish remarks have helped the pound to reverse the 2 percent drop against the dollar that came after a snap election on June 8 left no party with a clear majority.

But readings of Britain's economy as it negotiates its exit from the EU could bolster arguments against raising rates too soon, even though inflation is well above the Bank's 2 percent target.

"As the second half of 2017 gets underway, the negative impacts of Brexit (are being) reflected in the British pound and domestic economic data," said FXTM analyst Lukman Otunuga.

"Uncertainty over Brexit has exposed sterling to heavy losses and this continues to fuel inflation. With rising inflation outpacing wage growth, consumers are feeling the pinch and as such, has raised questions over the sustainability of the UK's consumer driven economic momentum."

Sterling has lost around 14 percent against the dollar and 13 percent against the euro since Britain voted to quit the EU last June, though it has recovered some ground since hitting 31-year lows last October.

Data on Wednesday showed growth across British services companies fell to a four-month low in June, with companies at their least optimistic in nearly a year.

"Whilst the headline figures may do little to startle the Bank of England just yet, this will be a stark warning for the possibility of further trouble ahead for Carney and Co," wrote Anthony Kurukgy, a sales trader at Foenix Partners, in a note to clients.

"With a government in disarray, the business sector could continue on a sluggish path until nervy investors find a reason to feel confident again."

Sterling extended a dip below $1.29 after the data was released, falling as much as 0.3 percent lower to a one-week low of $1.2894 before recovering a touch to trade flat on the day at $1.2929 by 1555 GMT.

Against a weaker euro, it edged up 0.2 percent to 87.67 pence.