Sterling slips after UK industrial output falls sharply

By Patrick Graham and Jemima Kelly

LONDON (Reuters) - Sterling posted its biggest slide in two months on Wednesday after poor British industrial output data added to the sense that a month-long recovery in the currency may have run its course.

Sterling fell as much as 0.7 percent to touch a one-week low against the euro of 85.145 pence, extending a slide triggered by another round of Brexit-related political turbulence late on Tuesday.

Against the dollar it also fell 0.7 percent to dip back below $1.26 after the October output data showed the biggest monthly fall in four years.

The weak performance by manufacturers may raise doubts about how much of a boost factories are getting from the big fall in sterling since Britain voted in June to leave the European Union.

The monthly slide was largely attributed to a temporary shutdown of a major oilfield but it fuelled speculation that the economic data may finally be turning lower after proving more robust than many had forecast after the Brexit vote.

"So far investors have been of the mind frame that the country is overcoming its major economic headwinds but today's number clearly shows how much off beat they are with respect to reality," said Naeem Islam, chief markets analysts with retail broker Thinkmarkets.

"Sterling.. was under pressure and after the data the punishment has become more intense."

Prime Minister Theresa May's on Tuesday accepted the opposition Labour Party's demand she give details of her plan for leaving the EU before formal talks begin, but she asked parliament to back her target of launching the talks in March.

That provides no new details on what has become the key issue for markets: how "hard" a break from Europe she will aim for. But it reduces the chances of a delay, previously read by investors as supportive of greater compromise in the process.

"Despite Downing (Street's) promise of more details on Brexit plans there remains a huge fog over the position that the UK government intends to take with its EU counterparts," analysts from Rabobank said in a morning note.

"We see risk for sterling dipping back to the $1.24 area on a 3 month view in recognition of the political uncertainty that still clouds the UK."

(Reporting by Jemima Kelly, editing by Nigel Stephenson)