Sterling shrugs off weak GDP data, cements gains before election

LONDON (Reuters) - Sterling edged higher on Tuesday, cementing recent gains as traders shrugged off weak economic growth data and kept an eye on the final days of campaigning before Britain's general election on Thursday.

The pound on Monday reached a seven-month high against the dollar and a two-and-a-half-year high versus the euro as investors ramped up their bets the governing Conservative Party would win a majority in Thursday's election.

Sterling held most of those gains even though data showed Britain's economy grew at its slowest annual pace in nearly seven years in October, just 0.7%.

"The latest batch of economic data from the UK provides a fairly negative view on the recent levels of activity with the main takeaway being a flat GDP reading for the month of October, said David Cheetham, chief market analyst at online broker XTB.

Industrial output fell by 0.7% in the three months to October and services grew by 0.2%, its weakest increase since June, the data also showed.

"Sterling price action is all about the upcoming parliamentary election and real economic data should continue to play second fiddle," ING analysts said in a note sent to clients.

In early London trade, the pound was up 0.2% at $1.3157 <GBP=D3>, close to Monday's high of $1.3180.

Against the euro the pound rose 0.1% to 84.18 pence <EURGBP=D3>, not far from the two-and-a-half-year high of 83.94 pence touched on Monday.

Polls predict a Conservative Party majority, which many investors believe would lift some of the political uncertainty that has hampered the British currency.

Prime Minister Boris Johnson's Conservative Party has vowed to take Britain out of the European Union on Jan. 31.

Cheetham at XTB noted that the biggest driver for the pound on Tuesday could come at 2200 GMT when a new YouGov poll is released.

(Reporting by Tommy Wilkes; editing by Gareth Jones, Larry King)