LONDON: Sterling fell towards the $1.25 mark on Tuesday and reached a two-week low against the euro after new data showed Britain's economy was recovering more slowly than forecast.

Gross domestic product rose by 1.8% in May after falling by a record 20.8% in April, the Office for National Statistics said, well below forecasts in a Reuters poll.

"You saw sterling moving lower almost immediately after the announcement and it was a big disappointment and I think that it's also the realisation that maybe the V-shaped recovery doesn't apply to the UK to the same extent," said Morten Lund, an analyst at Nordea.

Adding to fears was a warning from authorities that another, more deadly COVID-19 wave could kill up to 120,000 Britons over the winter.

The pound fell 0.33% to $1.2510 versus the dollar and traded 0.4% lower against the euro at 90.77 pence .

Consumer data also indicated a tentative recovery. The British Retail Consortium said retail sales values rose by 3.4% in annual terms in June, and Barclaycard said overall consumer spending fell 14.5% in annual terms in June, the smallest decline since lockdown began

Money markets price in the Bank of England's cutting rates below 0% only next March. But government two-year bond yields plumbed a record low around minus 0.13% and 10-year yields slipped 2.5 basis points to 0.16%.

FTSE mid-cap shares, which tend to be mostly domestically oriented, fell 1.3% versus a 0.3% decline for the exporter-laden FTSE100.

Investors are also waiting for more news on Britain's negotiations with the European Union on concluding a trade deal for the post-Brexit period. Britain left the bloc on Jan. 31, with a one-year transition period to iron out a future relationship.

"My feeling is the market is not fully pricing in the likelihood of a hard Brexit," said Colin Asher at Mizuho. "There has been very little progress on negotiations and even if there is a deal, there's not much time to put a lot in it."