Sterling slides vs resurgent euro, UK economy weighs

By Simon Falush

LONDON, May 21 (Reuters) - Sterling fell by nearly 1 percent versus a resurgent euro on Wednesday on concerns about the UK economy, while a surprise jump in German business sentiment strengthened the view that euro zone interest rates will not fall this year.

Strong German business sentiment data [ID:nBAE001220] bolstered the case for higher euro zone interest rates, causing the single currency to surge broadly and move beyond 80 pence towards a record high against the pound set last month.

UK interest rates by contrast, are seen as falling from the current 5 percent, albeit slowly.

The pound also fell against the dollar despite a brief respite after minutes from the Bank of England's Monetary Policy Committee meeting in May showed an 8-1 vote in favour of rates staying on hold with only arch-dove David Blanchflower voting for a cut.

However the move was limited as analysts had expected one MPC member would vote to cut rates.

Investors had previously pared back expectations on the extent of monetary easing from the BoE after the quarterly inflation report last week showed inflation rising close to 4 percent this year despite a slowing economy.

"The minutes were never going to give too much support (to sterling) given that investors were aware of the inflation report," said Naeem Wahid, currency strategist at Bank of Scotland Treasury Services.

By 1428 GMT the euro was up 0.9 percent at 80.21 pence, on track for its biggest daily gain in over a month and closing in on the record high of 80.98 pence set in April <EURGBP=>. The pound was down a third of a percent against the dollar at $1.9623 <GBP=>.