May 28, 2015 / 10:18 AM / 2 years ago

UPDATE 1-Growth, trade worries prod sterling lower

(Adds quotes, updates prices)

By Patrick Graham and Jemima Kelly

LONDON, May 28 (Reuters) - Sterling fell on Thursday after data confirmed that the British economy grew at 0.3 percent in the first quarter compared with the previous three months, disappointing those who had expected a higher reading.

The pound has bounced around in the three weeks since Conservative Prime Minister David Cameron won a shock outright election victory and for now seems subject chiefly to external factors like the future of the dollar’s year-long global rally.

But there were worrying signs for some investors in the data, with a sharp rise in imports that worsened the net trade position for the United Kingdom, which already runs a large current account shortfall.

“The imports number for the first quarter was pretty chunky, whereas exports lagged and that cannot be good for sterling,” said a senior dealer with one international bank in London.

“At the end of the day Britain has a substantial twin deficit problem whereas the euro zone is running a large current account surplus. If the Greek situation is resolved, I would be tempted to dip a toe back into the euro against sterling.”

By 0930 GMT, the pound was down almost half a percent at 71.38 pence per euro, its weakest in a week.

It also hit an intraday low of $1.5326, down 0.1 percent on the day.

Heaving over the horizon is a battle over whether to keep Britain in the European Union, a potential threat to investment and growth that analysts say has yet to hit sterling seriously.

“There are significant risks to expectations on UK growth from all the noise around the referendum,” another trader with a London-based fund said. “I would be astonished if the Bank of England delivered the higher interest rates that people have been betting on over the past two years any time soon.”

Gilts and the FTSE 100 share index were little changed after the data. (Additional reporting by Atul Prakash and Andy Bruce; Editing by Anirban Nag and Toby Chopra)

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