By mid-afternoon London time, the pound was down 0.6 percent on the day at a nine-month low of $1.5168, having earlier briefly topped $1.53 in the wake of revised figures showing the economy grew by 0.3 percent in the fourth quarter, better than the 0.1 percent initially thought.
Investors worried that most of the upward revision was due to government spending, which will more than likely start being removed after the general election because of Britain's burgeoning budget deficit.
Prime Minister Gordon Brown has to call a general election by early June. The recent shrinking of the lead held by opposition Conservatives in the polls and the better than expected growth figures have stoked talk that Brown may move even sooner.
"With consumer confidence rising and the Conservative poll lead narrowing, Brown must be tempted to hold a snap election next month," said Ian Kernohan, economist at Royal London Asset Management.
One of the key themes in the election campaign, whenever it formally begins, will center around dealing with the country's budget deficit, which is expected be around 12 percent of economic output this year
- in a league with Greece, which is in the throes of a debt crisis.
Jane Foley, research director at Forex.com, said the growth figures put into sharp focus the central dilemma facing economic policymakers after the election.
"These data highlight the ongoing argument over the risk of a double dip recession if too much austerity is introduced after the general election and the opposing view that a potential funding crisis could result if no austerity is announced," said Jane Foley, research director at Forex.com.