* 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 Jemima Kelly
LONDON, March 10 Sterling steadied on Friday
after its weakest fortnightly performance in five months, with
investors worried that Britain's economy is heading for a
slowdown on the back of sluggish consumer spending.
Data showing British factory output had its strongest growth
in nearly seven years in late 2016 and early 2017, with exports
also growing quickly, had only a marginally positive effect on
sterling, which inched up against the dollar on the numbers but
stayed down versus the euro.
While the data followed other strong manufacturing numbers
earlier this week, the sector accounts for only around 10
percent of Britain's economy.
Other numbers continue to suggest consumers, whose spending
helped cushion the shock vote for Brexit last June, are turning
more cautious. Separate data on Friday showed Britain's shops
endured their worst fall in February sales since 2009.
The pound was flat at $1.2169, having fallen around
2.5 percent in the past two weeks, its weakest showing since
October 2016, with its move downwards exacerbated by a
simultaneous dollar rally on the view that the U.S. Federal
Reserve will hike interest rates next week.
"If we've had this kind of move, and we know that sterling
relative to fair value is one of the cheapest around - if not
the cheapest - I just think there’s reluctance to add to
shorts," said UBS Wealth Management currency strategist Geoffrey
Yu, in London.
Some analysts said sterling was also being kept under
pressure by talk of another Scottish independence referendum.
The Financial Times reported on Friday that another vote is
now looking inevitable, and that government ministers have
concluded that it is a question of when such a vote will be
Against a single currency that was given a boost on Thursday
by comments from European Central Bank President Mario Draghi
that investors saw as somewhat hawkish, sterling slipped 0.3
percent to 87.19 pence per euro.
While investors are now betting on an ECB rate hike in early
2018, they see the Bank of England keeping rates at their record
lows for at least the next two years, as Britain negotiates its
way out of the European Union.
"Both intact uncertainties as related to Brexit and strongly
capped BoE monetary policy expectations are likely to keep any
sterling upside limited for now," wrote Credit Agricole
strategists in a note to clients.
"Medium-term inflation expectations...have been falling of
late, leaving the BoE in a more comfortable position to keep a
dovish stance for longer."
(Editing by Ed Osmond)