Sterling slips on UK growth, EU referendum concerns

By Jemima Kelly

LONDON, May 29 (Reuters) - Sterling slipped to a nine-day low against the euro on Friday, as investors worried about Britain's economic growth and a looming referendum on its membership of the European Union.

Also hurting the British pound was a survey that showed British consumer morale fell unexpectedly this month as optimism about the economy in the next 12 months faded fast.

That came after official data on Thursday showed the UK's gross domestic product grew just 0.3 percent in the first three months of this year, casting doubt on the strength of Britain's previously robust recovery and disappointing market expectations of an upward revision to GDP.

The pound, which had already weakened on Thursday in reaction to the GDP data, fell to 71.70 pence versus the euro on Friday, its weakest since May 20, and down 0.3 percent on the day.

Against the dollar, sterling inched towards a three-week low of $1.5260 hit after the GDP numbers, trading down 0.1 percent on the day at $1.5299.

"Investor (Stockholm: INVE-A.ST - news) sentiment would have been weakened by the news that the services sector expanded at its slowest speed for over two years," said Jameel Ahmad, market analyst at FXTM.

The GDP data showed that the services sector grew at its weakest pace in two years and also highlighted a sharp rise in imports, worsening the net trade position for the United (Shenzhen: 000925.SZ - news) Kingdom, which already runs a large current account shortfall.

Investors are now turning their attention to the EU referendum.

"Indications from the Queen's speech that a bill on an EU referendum would be rushed through parliament, at the same time (that) UK Prime Minister David Cameron begins his own campaign with EU leaders, has also weighed (on sterling)," said Ahmad.

Cameron's government introduced a law into parliament on Thursday to guarantee the EU referendum will be held by the end of 2017. It also disclosed the question voters will be asked, making it "Yes" to stay in, "No" to leave.

Analysts have been flagging concerns about a possible "Brexit". Many say the risks to a UK economy, which relies on inflows of investment and capital to fund its 100 billion-pound current account deficit, are greater now than they were during the Scottish independence referendum in September 2014.

"Headwinds stemming from political uncertainty, ... fiscal austerity and the EU referendum will continue to weigh on the economy," Barclays (LSE: BARC.L - news) analysts said in a research note. "Our more cautious stance post election has so far been justified." (Editing by Susan Fenton)