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Sterling Slips For Second Day

Sterling fell another 0.4 percent this morning 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 week.

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.

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.

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 yesterday was the worst since October.

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.

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 third.

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.

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