By Patrick Graham
LONDON (Reuters) - Britain's pound dipped below $1.27 for the first time since June 1985 on Wednesday, with fears of a 'hard' Brexit also pushing the currency to a five-year trough against a broadly stronger euro.
Sterling has been buffeted for a fortnight by worries that Britain will prioritize curbing immigration over promoting trade in its divorce from the bloc, thereby gumming up labor markets, curbing foreign investment and leading to cutbacks by banks and other global companies.
That has been the broad takeaway for markets from this week's conference of the ruling Conservative Party, and the pound has fallen past long-term lows set in early July in response, although there were signs of stability in morning trade in London.
Sterling hit a 31-year low of $1.2686 <GBP=D4> after opening before recovering to $1.2720, roughly flat on the day. It fell as much as 0.4 percent to 88.31 pence per euro <EURGBP=D4> before also clawing back some ground against the common currency.
"Sterling has finally and belatedly responded to the heightened and prolonged Brexit uncertainty, notwithstanding a resilient UK economy and prospects of significant UK fiscal stimulus," said Greg Gibbs, director of independent research house Amplifying Global FX Capital.
"The outlook remains negative, but it is risky to jump on the selling bandwagon."
Better than expected readings of sentiment among construction and manufacturing purchasing managers this week have done little to turn the mood brighter. Services numbers are due at 0830 GMT.
Britain's financial industry could lose up to 38 billion pounds ($48.3 billion) in revenue in a 'hard' Brexit that would leave it with restricted access to the European Union's single market, according to a report on Tuesday commissioned by consultancy firm Oliver Wyman.
"UK PMI data is unlikely to be a game changer," analysts from French bank Credit Agricole said in a morning note.
"Any better than expected reading may trigger some position squaring related upside in the pound. However, with rate expectations linked to long-term uncertainty and as fears of a hard Brexit remain intact, it seems unlikely that sentiment is changing for the better."
(Reporting by Patrick Graham, editing by Anirban Nag and John Stonestreet)