* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
(Recasts after weaker than expected services numbers)
By Patrick Graham
LONDON, Feb 3 Sterling fell another 0.4 percent
on Friday after a fall in a closely-watched services sector
indicator reawakened concerns over the impact of last year's
Brexit vote on a previously resilient economy.
The drop in the monthly index of service sector purchasing
managers was its first since October and followed small drops in
the construction and manufacturing equivalents earlier this
Along with a handful of other second tier numbers on housing
and sentiment, those are the first signs that consumers and
companies are starting to suffer from the decision last year to
leave the European Union.
"It is only one weak data point but it is a top tier one.
Sterling came off pretty hard yesterday and this is going to
give the market confidence (to sell it further)," said Richard
Cochinos, European head of G10 currency strategy at Citi in
"Real wages are going down and you can see sentiment is
softening, that is going to weaken the UK data over the next few
months. Short-term we're bearish and we are going to stay that
Sterling has gained almost 3 percent since Prime Minister
Theresa May laid out the government's vision for divorce from
the EU in a speech just over two weeks ago, but its 1.3 percent
fall against a basket of currencies on Thursday was the worst
The fall came on the back of a Bank of England quarterly
inflation report that upped growth forecasts but declined to do
the same on inflation and pointed to interest rates staying on
hold long into next year.
"UK data has been robust and price pressures are building,
but it was surely too early for markets to expect a
significantly more hawkish narrative (from the bank)," analysts
from Bank of America Merrill Lynch said in a note before the
"A benign interpretation of the Brexit process and strong UK
data had perhaps lulled the sterling market into a false sense
of near-term security," they said.
Another cautionary note on the economy came from data
showing the number of new homes built in London fell 6 percent
last year while an indicator of future supply dropped by a
The gains for sterling seem largely to reflect investors
cashing in the big negative bets taken on the pound after
Britain voted to leave the European Union last June.
That has provoked a number of major banks to call for the
pound to recover to around $1.30 in the months ahead, even if
most admit such forecasts are heavily exposed to the political
noise surrounding talks due to be launched by late March.
(Editing by Tom Heneghan)