LONDON, Aug 22 (Reuters) - Sterling inched up on Monday after registering its strongest week in five against the dollar, as a run of robust economic data suggested Britain's economy was faring better than expected following its vote to leave the European Union.
The pound was boosted last week after inflation and retail sales numbers for July beat forecasts, adding to signs there has been little immediate impact on consumer from the Brexit vote. Better-than-expected jobless claims data also lifted sterling.
Some of the week's gains, however, were eroded on Friday when the currency posted its biggest one-day fall against the dollar in two weeks - 0.7 percent - on a Bloomberg report that Britain could formally begin the process of leaving the EU early next year.
A government spokeswoman said Prime Minister Theresa May would not invoke Article 50 of the EU's Lisbon Treaty, which formally begins divorce proceedings, before the end of this year. "We don't recognise this briefing," a Downing Street spokeswoman said when asked about the report.
"The... price action on Friday (was) a gentle reminder about the risks sterling faces once UK-EU negotiations on terms of Brexit start," said ING currency strategist Petr Krpata.
"Despite the already meaningful fall, and very cheap valuation levels, we still look for more sterling downside in coming months, both against the euro and the dollar."
On Monday, sterling inched up 0.2 percent to $1.3094 , having gained 1.2 percent last week. It gained 0.4 percent against the euro to trade at 86.25 pence.
Sterling net short positions soared to a record high in the week to last Tuesday, data from the Commodity Futures Trading Commission showed on Friday.
Analysts say that in a market where speculators hold record high bets against sterling, stronger-than-expected data is providing an excuse for some to trim positions.
But any rally is likely to be brief, given the subdued outlook for the economy and interest rates, which markets reckon will be cut by a further 10 basis points by the end of the year from their record low of 0.25 percent.
"Considering that we have no major UK data releases this week, except for the second estimate of Q2 GDP,...negative sentiment could continue to weigh on the pound for a while, at least until we have any new updates on (Article 50)," wrote IronFX analyst Charalambos Pissouros. (editing by John Stonestreet)