LONDON, Sept 13 Reuters The pound weakened against the dollar on Wednesday after Britain39;s economy contracted at its sharpest rate in seven months in July as strikes and poor weather weighed on output.

Sterling was down as much as 0.4 against the dollar at 1.2442, its lowest level since June 8. It was last at 1.2472.

The euro strengthened as much as 0.3 against the British pound to 86.3 pence, hitting its highest level in a month, although was last little changed at 86.08 pence.

The UK economy contracted by 0.5 in July, figures from the Office for National Statistics ONS showed, a worsethanexpected contraction of 0.2 and the largest drop in monthly output since December 2022.

The decline in GDP in July suggests that underlying growth has lost momentum since earlier in the year, said Paul Dales, chief UK economist at Capital Economics. That would make sense given that the dampening effect of higher interest rates should be starting to be felt a bit harder now.

The Bank of England has raised interest rates 14 times since December 2021, taking them to a 15year high of 5.25.

Money market traders are pricing in around an 80 chance policymakers will raise interest rates again at next week39;s meeting and a 20 chance rates will remain on hold. Pricing for the terminal rate has meanwhile come down to around 5.6 from more than 6.

In my view, market pricing is still over the top, but it39;s more in line with where it should be, said Michael Brown, analyst at TraderX….