(removes Update 1 tag)
* 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
By Jamie McGeever
LONDON, Feb 10 Sterling slipped against a
buoyant dollar on Friday but flirted with its best week against
the euro in three months, after solid year-end UK manufacturing
and trade data allayed fears of an economic slowdown as the
Brexit process gathers pace.
A number of forward-looking indicators of sentiment have
dipped in the past 10 days, stirring nerves among investors that
a weakening of growth predicted by many economists since the
vote to leave the EU last June was finally materialising.
But manufacturing output rose 2.1 percent in December, far
higher than the 0.5 percent rise forecast in a Reuters poll.
Compared with December 2015, it was up 4.0 percent, the
strongest increase since April 2014.
Meanwhile, Britain's goods trade deficit fell to 10.89
billion pounds in December, narrower than a forecast of 11.5
billion in the Reuters poll.
"The upside surprise on manufacturing, in particular, was
strong enough to suggest there is a chance that GDP could be
revised up," said Allan Monks, UK economist at JP Morgan.
"While some of the consumer data have turned weaker lately,
the manufacturing data leave the risks around our first quarter
GDP forecast clearly to the upside," he said.
At 1600 GMT the pound was down 0.1 percent on the day
against the dollar at $1.2480, having traded in a range
of $1.2439-$1.2521 on Friday.
Sterling's upside was capped after Britain's Reckitt
Benckiser agreed to buy U.S. infant formula maker Mead Johnson
Nutrition for $16.6 billion, potentially fuelling corporate
demand to exchange sterling for dollars.
The euro was down 0.2 percent on the day at 85.06 pence
. Sterling was on course to end the week up nearly
1.5 percent against the euro, which would mark its biggest
weekly rise since Nov. 7-11.
On a trade-weighted basis, sterling has now risen three of
the last four weeks.
The BoE last week said it now expects economic growth of 2.0
percent this year, higher than the forecasts of all but one of
50 economists polled by Reuters last month and up sharply from
its previous forecast of 1.4 percent.
"So much for the Brexit meltdown," ETX Capital senior market
analyst, Neil Wilson, said. "Today's data confirm that the UK
economy remains very resilient and lends support to the Bank of
England's decision to revise up its 2017 growth outlook."
Yet the Bank is in no rush to raise rates. Deputy Governor
Jon Cunliffe warned this week that British business investment
is likely to remain very weak in the near term after June's
Sentiment remains largely driven by domestic politics and
the near-daily twists and turns in the Brexit process.
The head of the European Commission's office in Britain said
on Friday it is unrealistic for Britain to expect to negotiate
its exit from the EU and reach a free trade agreement in two
years and both will probably need an implementation phase.
(Writing by Jamie McGeever; Editing by Tom Heneghan)