Sterling sheds 1 pct to 5-1/2 year low on soft output data

By Jemima Kelly

LONDON, Jan 12 (Reuters) - Doubts about the strength of Britain's economy pushed sterling to a 5-1/2-year low against the dollar on Tuesday, after data showed British industrial output suffered its sharpest fall since early 2013 in November.

Output fell 0.7 percent month-on-month -- well below economists' forecasts for an unchanged reading -- after stagnating in October. Manufacturing numbers also disappointed, showing a 0.4 percent decline for the second month running, prompting analysts to lower growth forecasts for the fourth quarter of 2015.

Earlier figures showed retail spending rose by a "disappointing" 0.9 percent in the final quarter, which includes the crucial Christmas period, compared with a year earlier, the slowest such rise for more than a year.

The data prompted JP Morgan to push back its forecast for a first rise in UK interest rates until the end of this year, the latest major bank to do so.

The pound fell 1 percent on the day to $1.4378 after the output data, its weakest since June 2010. That took losses to more than 5 percent over the past month, when concerns about a referendum on Britain's future in Europe and revisions to Bank of England rate hike expectations have weighed.

Barclays (LSE: BARC.L - news) ' head of currency strategy Marvin Barth noted production data had been weak elsewhere too.

"(But) it's clearly not coming at a good time, when sterling is under a lot of pressure, when referendum fears are mounting, when there are concerns about fiscal policy."

The pound also fell by 1 percent to 75.455 pence per euro , close to an 11-month low hit the previous day. On a trade-weighted basis it hit an eight-month low.

"Combined with soft growth figures and Brexit fears, today's data will likely dampen any expectations of a UK rate rise in the near future," said Jake Trask, currency analyst at UKForex.

Investors had previously bet UK rates would rise in the second half of this year, following the U.S (Other OTC: UBGXF - news) . Federal Reserve, which last month hiked rates for the first time since 2006. But they now do not expect a hike in the UK until early 2017.

The BoE's monetary policy committee (MPC (KOSDAQ: 050540.KQ - news) ) meets on Thursday and the subdued activity data and turmoil in global markets is likely to weigh on policymakers.

"Our best guess is that the MPC vote will remain at 8-1 at this week's meeting, although these data raise the risk that (sole dissenter Ian) McCafferty will choose to withdraw his vote for higher rates for now," Malcolm Barr, analyst at JPMorgan (LSE: JPIU.L - news) said in a note. (Additional reporting by Anirban Nag; Editing by Catherine Evans)