LONDON: Sterling rose against the dollar on Tuesday, helped as the National Institute of Economic and Social Research, a UK think-tank, said British economic growth held steady at 0.5 percent in the three months to October.
NIESR's forecast helped calm fears that the UK could be slipping back into recession, though concerns about a very fragile recovery remained as data showed industrial output flatlined despite a modest rise in manufacturing.
The pound also tracked moves in the euro, which held up against the dollar as Italian Prime Minister Silvio Berlusconi managed to win a key budget vote in parliament. Concerns remained, however, about debt problems and political uncertainty in Italy and Greece.
Sterling was up 0.15 percent at $1.6073, though it stayed below its 200-day moving average -- a key technical indicator -- at $1.6141 and its late October high of $1.6167.
"The forecast of GDP growth staying steady through to October from NIESR has supported sterling a little," said Lee McDarby, head of dealing for corporate and institutional treasury at Investec.
He added that demand from UK corporates to buy euros ahead of 1.17 in sterling/euro -- which equates to around 85.47 pence in euro/sterling -- helped to prevent the euro dropping below its Nov. 1 low of 85.48 pence, which would mark its lowest in a month.
"There have been a lot of euro buyers coming in from 1.16 to 1.17 in sterling/euro. The UK corporate marketplace has learnt the euro will not go down without a fight and people are looking to take their opportunities where they can," McDarby said.
Traders cited euro bids around 85.50 pence, while there was also technical support at 85.48 pence, the euro's 200-week moving average. The euro was last steady at 85.75 pence.
However, the fact that the pound has kept near a one-month high against the euro kept sterling supported on a trade-weighted basis . It was last at 80.7, having earlier hit 80.8, equalling an eight-month high first hit on Monday.
Sterling is considered a safer bet than the euro because Britain's government is perceived to be more in control of implementing austerity measures to improve its public finances, something that euro zone countries including Italy and Greece have struggled to do so far.
"Sterling has certainly gained some benefit on what's been going on in Italy, and that's likely to continue the modest sterling appreciation versus the euro," said Simon Smith, economist at FXPro.
Analysts say that if Berlusconi were to resign it could offer some short-term relief to the euro, which has been stung by the view Italy needs new leadership to survive its debt crisis.
Many in the market believe widening yield spreads between UK gilts and the debt of some euro zone countries will continue to boost the pound, although analysts caution that further significant gains may be limited due to ongoing signs of weakness in the UK economy.
A weak reading of UK retail sales on Tuesday suggested that sluggish consumption may continue to hamper overall growth, with BRC retail sales falling 0.6 percent year-on-year in October.
Consistent weakness in the UK economy prompted the Bank of England to add to its asset-buying programme last month, but sterling has inched up against the euro despite the increased quantitative easing, which is often considered currency negative as it involves flooding the market with pounds.
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