The pound weakened against the dollar after a report showed UK service industries unexpectedly shrank in December for the first time in more than 1 8 months.
UK government bonds pared a decline after the gauge of services activity fell to 49.7 from 53 in November as winter weather gripped the economy. Economists forecast a decline to 52.8. A reading below 50 indicates a contraction.
"It was much worse than predicted," said John Hydeskov, senior foreign-exchange analyst at Danske Bank in London. "The reaction to this number is quite large. The service component is very, very important."
Sterling declined 0.1pc to $1.5493 in London. Against the euro, the UK currency strengthened 0.2pc to 84.57p.
The services report adds to evidence the UK economic recovery may have faltered in the fourth quarter after CIPS said yesterday that construction shrank in December for the first time in 10 months.
UK government bonds declined with the yield on the 10-year gilt up at 3.56pc.