Sterling lost 1-1/2 cents against the dollar and tumbled to a two-week low versus the euro on Tuesday after disappointing British trade and manufacturing output data raised concerns about slower domestic growth. The goods trade deficit widened to a record 5.6 billion pounds in January as exports to the United States plunged by 30 percent, perhaps in response to the strong pound against the dollar. Analysts were expecting a deficit of 4.2 billion pounds. Manufacturing output rose 0.2 percent in January from the previous month against a forecast for a rise of 0.5 percent. "They (the trade figures) are shockingly bad numbers and sterling is falling in a knee-jerk reaction. Manufacturing output was also on the disappointing side," said Richard Iley, UK economist at BNP Paribas. "The numbers show the economy is likely to struggle to match strong Q4 growth and underline the Bank of England's determination to take a cautious approach in raising interest rates."
By 1045 GMT sterling had fallen to a low of $1.8344 from pre-data levels of around $1.8520. It earlier hit a one-week high of $1.8586 as the dollar fell across the board. Against the euro it hit a two-week low of 67.43 pence , down half a percent from late New York levels on Monday. The pound, buoyed by higher interest rates and the relatively buoyant economy, rose almost 20 percent against the dollar over the past year, hitting a 11-year high of $1.9140 in February. On a trade-weighted basis, sterling hit a one-year high <=GBP> last week. "The problem is on the export front... the combination of a strong pound and weak demand from principal trading partners does nothing to help," said Geoffrey Dicks, economist at RBS Financial Markets. The BoE held interest rates steady at four percent last week but most analysts expect further hikes in the coming months as the central bank tries to keep a lid on roaring consumer demand and house prices. Stephen Nickell, one of the nine members of the BoE's Monetary Policy Committee, warned late on Monday that house price rises that continue to outpace gains in incomes raise the risk of a correction in the British housing market.///