By Harry Robertson
LONDON (Reuters) - The pound slipped on Tuesday as data showed that British house building wilted in May and the dollar found a footing.
Sterling was last down 0.18% at $1.241. The euro was flat against the pound at 86.18 pence.
The survey data showed house building in Britain fell at its fastest pace since May 2020 last month as construction companies struggled with rising interest rates.
The headline purchasing managers' index (PMI) survey score for the construction sector came in at 51.6 in May, above the 50 mark which signals growth and up from 51.1 in April.
Yet the headline concealed divergence within the construction sector, with commercial and civil engineering activity rising but house building suffering.
Chris Turner, head of markets at ING, said in a research note that Britain faced a "mortgage time bomb", with more than 600,000 mortgage holders due to refinance at higher rates in the next six months.
Turner said this could lead to the Bank of England (BoE) raising interest rates by less than markets expect. Traders currently envisage rates rising to around 5.4% later this year, from 4.5% currently.
The pound rose to a one-year high of $1.268 in mid-May as inflationary pressures remained strong - making more BoE rate hikes likely - and the outlook for the British economy has brightened somewhat.
It has since slipped as the dollar has found favour among investors due in part to fears about the now-resolved U.S. debt ceiling standoff and in part because of strong U.S. labour market data.
The dollar index - which measures the greenback against six peers - was up 0.15% at 104.15.