- The pound did not immediately react to the data, given that there have been few signs of progress in breaking the deadlock over securing an exit deal with the European Union.
- The pound is set for a second straight quarter of losses, down 1.7pc versus the dollar.
LONDON: Sterling inched higher on Monday after a week of hefty losses and showed little reaction to data pointing to a contraction in the UK economy as the focus remained squarely on Brexit news from the ruling Conservatives' annual party conference.
The currency traded near three-week lows against the dollar which were hit on Friday, when a senior Bank of England policymaker said "prolonged high Brexit uncertainty" could warrant looser monetary policy if global growth remained disappointing.
By 1100 GMT the pound was up 0.1pc at $1.2304, having fallen 1.6pc last week to three-week lows. Versus the euro, it firmed 0.3pc, just off two-week lows touched on Friday .
Data showed the British economy contracted at a 0.2pc quarterly rate, but grew by 1.3pc in the year to end-June, versus earlier estimates of 1.2pc, implying continued support from household spending.
The pound did not immediately react to the data, given that there have been few signs of progress in breaking the deadlock over securing an exit deal with the European Union.
Prime Minister Boris Johnson reiterated he would deliver Brexit by Oct. 31, with or without a deal, while Arlene Foster, the leader of Northern Ireland's Democratic Unionist Party (DUP), an ally of Johnson's Conservative Party, said she could not accept any deal that treated the province differently from the rest of the United Kingdom.
Johnson has not said how he could push through a no-deal Brexit without contravening a parliamentary law requiring him to seek an extension if an agreement is not reached by Oct. 19. He is also under pressure over allegations he groped two women 20 years ago
The government's unchanged stance on aiming for an Oct. 31 Brexit has reduced some of the optimism that boosted markets immediately after last Tuesday's Supreme Court ruling that Johnson had acted unlawfully in suspending parliament.
"Market excitement about an imminent deal always seemed a little optimistic, and the FX team has opted to sell sterling again," analysts at NatWest Markets told clients.
The pound is set for a second straight quarter of losses, down 1.7pc versus the dollar.
Many investors have chosen to express their sterling stance in options markets and renewed uncertainty over the scheduled Oct. 31 Brexit date is being reflected in one-month implied volatility contracts.
One-month implied vol is at a one-week high around 11.7 vols. and pound volatility is well above its G7 peers.
Sunil Krishnan, head of multi-asset funds at Aviva Investors, said an election looked probable, given markets now widely expect a Brexit date extension.
"We have no strong views on timing or outcome of an election. As a result we are more focused on risk management than trying to bet on a particular outcome," he said, noting he was neutral on sterling.