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Sterling slides, gilts rise after UK surveys point to contraction

LONDON, July 22 (Reuters) - Sterling dived and gilts rose on Friday after surveys showed business activity shrinking at a fast pace after the shock Brexit vote last month, bolstering expectations the Bank of England will have to do more next month to stimulate growth.

The PMI (Other OTC: PMIR - news) survey of services sector purchasing managers fell to 47.4 in July from 52.3 in June, marking the steepest drop since records began in 1996 and the lowest reading since March 2009. Economists polled by Reuters had expected a much smaller fall to 49.2.

The manufacturing PMI fell to 49.1 from 52.1 in June, the lowest since February 2013. The composite index, which combines services and manufacturing, slumped to 47.7 from 52.4, the weakest reading since April 2009.

Markit (NasdaqGS: MRKT - news) said that if the PMIs stayed at these levels, they would be consistent with the economy shrinking at a quarterly pace of 0.4 percent, a rate of decline not seen since the 2008-09 recession.

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Sterling fell 0.5 percent to a day's low of $1.3165 down from $1.3270 beforehand. The euro rose to a high of 83.785 pence, up from around 83.12 before the data was released.

British government bond futures briefly gained as much as 20 ticks after the data, while 10-year gilt yields dropped slightly. (Reporting by Anirban Nag and David Milliken; editing by Patrick Graham)