Pound falls against the dollar after weak UK GDP data

The pound has slipped against the dollar after official data showed that the UK economy contracted in October.

Sterling (GBPUSD=X) is down 0.3% against the US dollar on Tuesday, trading at $1.2521 after dropping to $1.25176, the lowest levels since last November.

"This sharp decline in the British pound came with the disappointing data of the British economy, which recorded a decline in its various major sectors last October," said Samer Hasn, market analyst at XS.com.

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Gross domestic product (GDP) unexpectedly shrank 0.3% in October, partially offsetting growth of 0.2% in September, according to the Office for National Statistics (ONS). Analysts expected GDP to remain flat in the month.

The data has encouraged markets to bet on interest rate cuts early next year, which is also weighing on UK gilts.

Short-term government borrowing costs have fallen to their lowest level since June as bond markets surge over hopes of interest rate cuts.

The yield on two-year UK gilts — which moves inversely to prices of the bonds — has fallen about eight basis points to 4.41%, their lowest level since June.

The yield on 10-year government bonds dropped more than six basis points to 3.89%, their lowest point since May.

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Investors will see if policymakers will stick to their tough line against signalling cuts to interest rates from their 15-year high when the Monetary Policy Committee holds its next meeting on Thursday.

"We doubt the BoE will change its guidance this week, but there is a case for that happening early next year," Allan Monks, an economist at JP Morgan, said.

Watch: Economy contracted faster than expected in October, data suggests

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