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Weak economic data sends sterling to new lows against dollar

Sterling fell to a fresh two-year low against the U.S. dollar on Thursday after a slew of data pointed to a weakening British economy.

Britain’s economy unexpectedly shrank 0.1% in March after a slump in car sales due to supply-chain problems. 

Data also showed British employers added permanent staff last month at the weakest rate in more than a year suggesting the labour market might be cooling, according to a survey that will be noted by the Bank of England as it assesses inflation pressures. 

According to head of FX at Rabobank London, Jane Foley, 0.1% month-on-month drop in UK March GDP highlights the loss of momentum in the economy since the start of the year as higher inflation bites.

The Bank of England will have to push borrowing costs higher to control fast-rising inflation, but its four interest rate increases since December are having an impact on the economy, Deputy Governor Dave Ramsden told Bloomberg News.

CIBC Economics said it had revised down its forecast for sterling, in line with the deterioration in the growth backdrop and squeeze to incomes from higher inflation and taxes.

Reuters notes that against a weakening euro, hit by a fresh wave of risk-aversion, sterling had a choppy day. It jumped 0.8% to 85.19 pence against the euro , after falling to 86.18 pence in early London trading, its lowest against the single currency since October 2021.

Editing by Marian Benjamin, Tola Oguneye