February 8, 2019 / 9:31 AM / 7 months ago

Sterling set for worst week since October as Brexit fog descends

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Feb 8 (Reuters) - Sterling on Friday was headed for its worst weekly decline since October with a stalemate over Brexit weighing on the currency and leading the Bank of England to cut its growth forecast.

The pound was volatile on Thursday. It fell after the BoE kept interest rates on hold and then strengthened when the central bank said rates will rise if an EU divorce deal is done.

That was seen as somewhat hawkish a time when other major central banks have said they will hold off from raising borrowing costs.

But with no obvious way out of the Brexit deadlock in parliament and British Prime Minister Theresa May yet to secure any concessions from Brussels, the pound faces further downside risks, analysts say.

“Any meaningful forecasting was largely dependent on a benign outcome to the ongoing Brexit talks, which look set to go right down to the wire,” said CMC Markets’ chief analyst Michael Hewson.

“Sterling markets are broadly pricing in the short-term Brexit uncertainty,” he said.

The pound fell 0.2 percent to $1.2935, after dropping as low on Thursday as $1.2854, a two-week low. It has lost over 1 percent of its value this week.

Against the euro, it traded flat at 87.56 pence.

May will return to parliament on Feb. 14 for a debate on the Brexit negotiations, when lawmakers could again try to wrest control of the process from her, but a vote on approving the Brexit deal is likely to come later in the month.

In a letter to May released on Wednesday, Labour leader Jeremy Corbyn set out five conditions for Labour to support a deal, including a “permanent and comprehensive” customs union with the bloc, which May has ruled out. (Reporting by Tom Finn; Editing by Angus MacSwan)

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