February 8, 2019 / 9:33 AM / 7 days ago

Sterling heads for worst week of 2019 on Brexit impasse

LONDON (Reuters) - Sterling was headed on Friday 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 UK growth forecast.

An English ten Pound note is seen in an illustration taken March 16, 2016. REUTERS/Phil Noble/Illustration

The pound has strengthened in 2019 on expectations that a disorderly no-deal Brexit can be averted but worry among investors has returned with less than two months until Britain is due to exit the EU and no obvious path to a deal in sight.

The EU on Friday urged British Prime Minister Theresa May to grasp an offer from the Labour opposition to break an impasse over Brexit, but that would reverse May’s determined position.

The pound fell 0.2 percent to $1.2922. It has lost over 1 percent of its value this week. Against the euro, it traded flat at 87.52 pence.

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 at 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 May yet to secure any concessions from Brussels, the pound faces further downside risks, analysts say.

“Any meaningful (BoE) 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.

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 and Mark Potter

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