LONDON: The pound fell against a rising dollar on Wednesday as investors worried about a deteriorating outlook for growth in the UK, although they were skeptical of a further significant decline in the pound.

UK manufacturing activity rose in May at the weakest pace since January 2021, as producers of consumer goods battled a worsening cost of living crisis.

UK house prices surged again last month, but a slowdown caused by cost-of-living challenges is likely, mortgage lender Nationwide said.

The data raised new questions about the strength of Britain’s economy, where inflation at its highest level in 40 years has driven consumer confidence to record highs.

As of 1425 GMT, the pound was down 0.9% against the dollar at $1.2505, but still well below its mid-May lows when it bottomed out since May 2020.

It fell 0.1% to 85.3 pence against the euro.

The greenback rose 0.7%, buoyed by higher Treasury yields as global inflation concerns erupted again.

“The pound could lead the way lower for now, amid concerns over the economy,” analysts at SocGen said.

“The biggest support for the pound comes from its valuation. GBP/USD is 11% below its average level over the past decade and 4% below the post-referendum average,” they added.

ING analysts “do not see a bearish trend in sterling turning into a slump”. Money markets are still discounting a path of aggressive monetary tightening from the Bank of England (BoE) despite fears of an economic slowdown, as they price in 140 basis points of BoE rate hikes by the end of the month. the year.

However, analysts have recently argued that raising rates to tackle soaring inflation is pound negative as it could hurt an already weak economy. They added that the pound has recently taken on the characteristics of a growth currency, being driven more by equities than by credit spreads.

British politics remain front and center for investors as Prime Minister Boris Johnson faces a potential vote of confidence from his lawmakers, with commentators suggesting he could consider holding a snap election ahead of a scheduled 2024 date for rebuild his authority.

Deputy Prime Minister Dominic Raab said Britain was “highly unlikely” to hold a snap election.