UPDATE 1-Sterling dips after tepid UK services data

* Graphic: Sterling and gilt yields http://bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv (Adds background, comments)

LONDON, July 5 (Reuters) - Sterling dipped on Wednesday as a reading of Britain's services sector added to a string of weak-looking surveys and data that could deter the Bank of England from raising record-low interest rates for the first time in ten years.

A number of Bank policymakers, including BoE Governor Mark Carney, have spoken in favour of soon reversing last year's interest rate cut, which followed the shock Brexit vote.

The hawkish remarks have helped the pound to reverse its 2 percent drop against the dollar, in response to a snap election on June 8 leaving no party with a clear majority.

But readings of Britain's economy as it negotiates its exit from the European Union could add to arguments against lifting rates too soon, despite inflation soaring past the Bank's 2 percent target.

Growth across British services companies fell to a four-month low in June and companies were their least optimistic in nearly a year, according to Wednesday's Markit/CIPS UK Services Purchasing Managers' Index (PMI).

The index edged down to a four-month low of 53.4 in June from 53.8 in May, just shy of a forecast for 53.5 in a Reuters poll of economists, adding to surveys from the manufacturing and construction sectors which disappointed forecasts.

"Whilst the headline figures may do little to startle the Bank of England just yet, this will be a stark warning for the possibility of further trouble ahead for Carney and Co," wrote Anthony Kurukgy, a sales trader at Foenix Partners, in a note to clients.

"With a government in disarray, the business sector could continue on a sluggish path until nervy investors find a reason to feel confident again."

Sterling extended a dip below $1.29 after the data was released, falling as much as 0.3 percent lower to $1.2894.

It was flat against the euro at 87.83 pence.

Earlier in the day, data from the Office for National Statistics showed British economic productivity fell in the first three months of this year, the first decline since late 2015.

"There's a risk that softer data could cause a repricing at the front end (of the rate curve) and push back any 2017 rate hike expectations - that seems to be the biggest risk for sterling in the short term," said ING currency strategist Viraj Patel.

Political instability has also been cited as a risk for sterling by analysts, some attributing June's weak PMI surveys to the uncertainty surrounding Britain's election results in June.

Prime Minister Theresa May has faced calls to quit from within and outside her ruling Conservative Party since the election and has struggled to unite her government on policy and to assemble a new team of aides. (Reporting by Ritvik Carvalho; Editing by Raissa Kasolowsky and Louise Heavens)