Sterling slips with economic data, tariff uncertainty in focus

By Johann M Cherian

(Reuters) -Sterling slipped on Monday in a lacklustre start to a week packed with economic data reports that could offer clues to the interest rate outlook, while globally investors watched the latest deadline on U.S. tariffs.

Sterling slipped 0.3% and last fetched $1.3601 against the U.S. dollar, while the pound was broadly unchanged against the euro at 86.23 pence.

Last week saw investors in UK assets rattled by ambiguities around the health of public finances, as a number of U-turns by the governing Labour Party over welfare reforms sparked speculation around the future of finance minister Rachel Reeves.

Traders are now shifting their focus to a set of data this week, with Monday bringing a report that showed British house prices stagnated month-on-month during June as expected, after an increase in tax on property transactions took effect in April.

However, "the post April dip is likely to fizzle out", said Victoria Scholar, head of investment at interactive investor. "Plus, mortgage lending is improving, thanks to four rate cuts from the Bank of England over the last year and two more priced in this year."

Later in the week, traders will scrutinize a report on gross domestic product that could offer clarity on the health of the UK economy and determine the outlook on interest rates.

Bank of England policymaker Alan Taylor said late on Friday that he thought it would be better to cut interest rates now rather than wait and risk needing to cut them in a hurry.

Taylor expects the Bank Rate to fall to "around 3%" by the end of next year. Traders largely anticipate the next 25 basis points interest rate cut by the central bank will be in September, according to data compiled by LSEG.

Meanwhile, investors globally were awaiting a Wednesday deadline ahead of which economies scrambled to strike trade deals with the U.S. to avoid sharply higher duties on their exports to the United States.

Britain was the first to secure an agreement with the U.S. in May and has avoided the additional tariffs on steel and aluminium. Negotiations are ongoing to remove existing 25% duties on industrial metals altogether.

The pound has appreciated about 2% since the deal with the U.S. and is trading close to its highest level since late 2021, also benefiting from a broader dollar weakness.

Separately, a Deloitte survey showed British business executives now see greater opportunities closer to home, while the attractiveness of the United States as an investment destination dwindled.

In other news, Reeves is expected to announce a 28.6 million pound ($39 million) investment by the National Wealth Fund in a carbon capture project that could create jobs in central and northern England, as the government strives to shore up public support.

(Reporting by Johann M Cherian; Editing by Aidan Lewis)