May 5, 2016 / 9:25 AM / 2 years ago

Sterling slips as disappointing UK services survey weighs

LONDON, May 5 (Reuters) - Sterling fell for a straight third day on Thursday after a key services sector report added to concerns that the economy is stumbling in the run-up to a vote on whether Britain should quit the European Union.

The pound has lost ground this week, retreating from a four-month high struck against the dollar on Tuesday, after poor surveys of manufacturing and construction highlighted the economic risks posed by the June 23 referendum.

A PMI survey showed that Britain’s services sector grew at its lowest rate in more than three years in April, according to Markit’s services activity index. The index fell to 52.3 in April from 53.7 in March, below even the lowest forecasts in a Reuters poll of economists.

Markit added that if last month’s weakness persists, overall British growth may be just 0.1 percent in the second quarter, down from quarterly growth of 0.4 percent in the first three months of this year.

Sterling fell to a day’s low of $1.4467 after the services sector survey was released, well below a four-month high of $1.4770 struck on Tuesday. It was 0.4 percent higher against the euro at 78.90 pence per euro.

“What we really need to consider though is that this is the third major PMI release this week that has disappointed,” said Jameel Ahmad, chief market analyst at FXTM.

“And while the upcoming referendum uncertainty has had an impact, you have to consider how data would react over a period if the UK did really leave the European Union.”

Most economists reckon leaving the EU would deal a blow to the British economy, with a hefty current account deficit - 7 percent of GDP in the last quarter of last year - leaving Britain vulnerable to any pull-back in investment flows.

Traders will also keep an eye on the mayoral elections in London where the Labour Party’s Sadiq Khan is tipped to become mayor, somewhat loosening the ruling Conservatives’ hold over Britain’s financial centre. Local elections are also being held across Scotland, Wales and northern England.

Investors are cautious about buying the currency given most polls show a neck-and-neck contest between those campaigning to stay in and those who want to opt out of the EU.

Despite the closeness of most of the polls, bookmakers have consistently put the “In” campaign well ahead of those who want to leave the bloc. Betting website Betfair shows the chances of leaving at around 32 percent.

“Brexit will add uncertainty and inject a lot of volatility,” said Chris Chapman, portfolio manager at Manulife Asset Management. “We have very little exposure to the UK, but have hedged it through the options market.” (Reporting by Anirban Nag; Editing by Mark Trevelyan)

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