© Reuters. FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger/File Photo

(Corrects spelling of GDP in headline)

By Joice Alves

LONDON (Reuters) – Sterling edged lower on Friday after data showed Britain’s post-lockdown economic rebound slowed sharply in May despite a further relaxation of social-distancing rules.

Gross domestic product grew by 0.8% from April, the Office for National Statistics said, much weaker than the median forecast of 1.5% in a Reuters poll of economists.

After being hurt by a broader shakeout in FX markets that saw riskier currencies fall and safe havens gain on Thursday, sterling had flattened at $1.3786 by 0830 GMT. In earlier London trading, it fell to $1.3756 when the GDP data was released.

“Sterling has started the day on the back foot after May’s growth data came in below expectations,” said Francesco Pesole, FX Strategist at ING. “Some cracks in the so-far very positive recovery story in the UK may leave sterling a bit more vulnerable.”

Versus the euro, sterling flattened at 85.94 pence, after having its worst day in two months on Thursday as the European Central Bank set a new inflation target, which gave the euro a broad boost.

Capping sterling declines, transport secretary Grant Shapps said fully vaccinated UK residents returning from medium-risk amber list countries would from July 19 no longer have to quarantine when they arrive home.

The move is “another indication that the recent increase in cases is not set to materially derail re-opening plans in the country,” ING’s Pesole said.

Sterling had found some support this week on British Prime Minister Boris Johnson’s plans to end social and economic COVID-19 restrictions in England.

But investors remained cautious as the government also warned that the number of coronavirus cases could climb as measures are relaxed.

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