Sterling slips on worries over Britain's economic health

LONDON (Reuters) - Sterling slipped against a stronger dollar on Tuesday, kept under pressure by worries over the health of the economy as Britain prepares to leave the European Union, with the latest data offering little respite after a heavy sell-off last week.

FILE PHOTO: Bank of England governor Mark Carney poses with a new polymer five pound note at Whitecross Street Market in London, Britain September 13, 2016. REUTERS/Stefan Wermuth/File Photo

On Thursday, the pound suffered its biggest fall on a trade-weighted basis since the week after June 2016’s Brexit vote after the Bank of England raised interest rates for the first time since 2007. The British central bank said it expected only two more hikes in the coming three years, however, with even that dependent on the deal Britain gets from the EU.

Investors are therefore monitoring the negotiations around Britain’s future relationship with the EU closely for any clues on the BoE’s future rate path, as well economic data releases.

A survey by the British Retail Consortium on Tuesday showed retail spending fell last month at the fastest pace since 2008.

That followed auto sales data on Monday that showed new British car registrations fell 12.2 percent in October, as demand fell across all parts of the market.

“Soft UK data this week reflect a poor month for the consumer in October,” said Mizuho’s head of hedge fund currency sales, Neil Jones. “The numbers should (justify) the recent BoE ‘dovish hike’”.

Sterling fell half a percent on Tuesday to $1.3112, not far from a one-month low of $1.3040 hit on Friday. It also slipped 0.2 percent to 88.29 pence per euro.

Investors are eyeing the next stage of Brexit negotiations that start on Thursday, with focus on whether Britain can indeed secure the two-year transitional deal that Prime Minister Theresa May wants and avoid a “cliff-edge” exit from the bloc.

“The market is currently pricing in a transitional (Brexit) deal ... and a transitional deal results in things being OK for the pound,” said Sam Lynton-Brown, a currency strategist at BNP Paribas in London.

“But this highlights a vulnerability. If market sentiment shifts, if the market starts to price in a ‘no deal’ scenario, it’s likely to weigh on sterling.”

May’s government said on Tuesday it was about to submit legislation to parliament needed to let Britain pursue an independent trade policy and to convert existing EU free-trade agreements into British ones once it leaves.

Figures from mortgage lender Halifax on Tuesday showed house prices rising in the three months to October at their fastest pace since February. But the numbers -- which were in line with market expectations -- had no impact on the currency.

Reporting by Polina Ivanova; Editing by Jemima Kelly and Catherine Evans