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The pound fell further on Friday morning after worse than expected data on industrial production and house prices suggested the UK economy may be reaching a turning point after its unexpected strength at the end of 2016.
Official figures showed industrial output fell for the second consecutive month in February, while output figures for the start of the year were also revised downward. Halifax’s latest survey of house prices, meanwhile, showed year on year growth at its lowest level in nearly four years.
The pound fell as low as $1.2408, and at publication time was 0.37 per cent weaker for the day at $1.2421.
Sterling has been largely resilient to Brexit-related worries in the last few months after the UK economy dealt with the initial post-referendum shock better than expected, but economists have suggested cracks are now beginning to appear.
Analysts at Barclays said the data support their forecasts of a slowdown in quarterly economic growth to 0.4 per cent.
Industrial production, construction output, turnover and trade data released for February point to softer activity in the first months of the year although past momentum should ensure that Q1 17 activity remains safely in positive territory.
David Page, senior economist at AXA Investment Managers, said the slowdown “will likely soothe hawkish concerns brewing on the [Bank of England's] Monetary Policy Committee”.
Further evidence of slower activity is likely to increasingly undermine the prospect of tighter monetary policy in the UK. Our own outlook is for the bank rate to remain unchanged until 2019. This is likely to contribute to further sterling weakening over the coming months.
Sam Hill, senior UK economist at RBC Capital Markets, highlighted the fact that the worst moves in the industrial data came from more erratic sectors rather than the more important manufacturing segment, but said the data were still “clearly bad news in terms of Q1 GDP arithmetic”.
Mr Hill maintained his prediction of a 0.4 per cent economic expansion in the first quarter, though said this “does however require that there will be somewhat of a bounce back in activity in March”.
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