By Elizabeth Howcroft

LONDON (Reuters) -A rebound in global risk appetite pushed the British pound up against the dollar and euro on Tuesday, after Prime Minister Boris Johnson cautioned that further lockdown measures may be needed.

A combination of fears about the rapid spread of the Omicron coronavirus variant, possible lockdowns in Europe, as well as a blow to U.S. President Joe Biden’s fiscal spending plans caused a “risk-off” move in currency markets on Monday, with the pound dropping to as low as $1.3175.

As the move reversed on Tuesday, however, the pound recovered in line with other risk-sensitive currencies. It was up 0.3% on the day at 1215 GMT, at $1.3248, having erased its gains from when it jumped to $1.33755 following the Bank of England raising rates last week.

Versus the euro, it was up around 0.2% at 85.21 pence per euro.

Johnson said on Monday that he would take “further action” to limit the spread of the Omicron variant if needed, describing the situation as “extremely difficult”.

British media said ministers had pushed back against the prospect of new restrictions before Christmas.

“The fast spread of the Omicron variant in the UK may keep some pressure on GBP around Christmas, in particular as the government may opt to impose some new restrictions,” wrote ING FX strategists in a client note.

ING said that investors likely still have short positions on the pound, which could help limit its losses, but “risks still appear moderately skewed to the downside”.

Data showed British public borrowing nearly halved in the first eight months of the 2021/22 financial year compared with a year earlier when finance minister Rishi Sunak was deep in his emergency pandemic spending programme, official statistics showed.

“Although the economy has got better at coping with restrictions with each new wave, we still suspect it would prompt a deterioration in the public finances via lower tax revenues and the potential reintroduction of government support schemes,” said Bethany Beckett, UK economist at Capital Economics in a note to clients.

As Omicron infections jump, Sunak is under pressure to come up with new support for the hospitality industry and other affected sectors. A UK minister said Sunak would say more about this soon.

British retail sales growth fell sharply in the first half of December, according to the Confederation of British Industry.

A business confidence survey showed British businesses began to feel the impact of the Omicron variant this month.

(Reporting by Elizabeth Howcroft, editing by Ed Osmond and David Evans)

By Elizabeth Howcroft

LONDON (Reuters) -A rebound in global risk appetite pushed the British pound up against the dollar and euro on Tuesday, after Prime Minister Boris Johnson cautioned that further lockdown measures may be needed.

A combination of fears about the rapid spread of the Omicron coronavirus variant, possible lockdowns in Europe, as well as a blow to U.S. President Joe Biden’s fiscal spending plans caused a “risk-off” move in currency markets on Monday, with the pound dropping to as low as $1.3175.

As the move reversed on Tuesday, however, the pound recovered in line with other risk-sensitive currencies. It was up 0.3% on the day at 1215 GMT, at $1.3248, having erased its gains from when it jumped to $1.33755 following the Bank of England raising rates last week.

Versus the euro, it was up around 0.2% at 85.21 pence per euro.

Johnson said on Monday that he would take “further action” to limit the spread of the Omicron variant if needed, describing the situation as “extremely difficult”.

British media said ministers had pushed back against the prospect of new restrictions before Christmas.

“The fast spread of the Omicron variant in the UK may keep some pressure on GBP around Christmas, in particular as the government may opt to impose some new restrictions,” wrote ING FX strategists in a client note.

ING said that investors likely still have short positions on the pound, which could help limit its losses, but “risks still appear moderately skewed to the downside”.

Data showed British public borrowing nearly halved in the first eight months of the 2021/22 financial year compared with a year earlier when finance minister Rishi Sunak was deep in his emergency pandemic spending programme, official statistics showed.

“Although the economy has got better at coping with restrictions with each new wave, we still suspect it would prompt a deterioration in the public finances via lower tax revenues and the potential reintroduction of government support schemes,” said Bethany Beckett, UK economist at Capital Economics in a note to clients.

As Omicron infections jump, Sunak is under pressure to come up with new support for the hospitality industry and other affected sectors. A UK minister said Sunak would say more about this soon.

British retail sales growth fell sharply in the first half of December, according to the Confederation of British Industry.

A business confidence survey showed British businesses began to feel the impact of the Omicron variant this month.

(Reporting by Elizabeth Howcroft, editing by Ed Osmond and David Evans)