LONDON- The pound firmed against a weaker dollar on Monday, gathering momentum after data showed the UK economy dodged recession in the third quarter of 2019.

Britain's economy grew at its slowest annual pace in nearly a decade as the global slowdown and Brexit worries hit manufacturing and business investment but the 0.3% growth marked a rebound following a 0.2% second quarter contraction. 

Versus the dollar, the pound was up 0.4% at $1.2825 by 1207 GMT and 0.3% firmer against the euro, trading at 85.98 pence.

The GDP figures came after data showed British employers' hiring plans have risen from an 18-month low, an unusually upbeat sign for the labour market.

Analysts noted however the economy had actually contracted in August and September when risks of a no-deal Brexit were high and that Dec 12 elections would dictate the pound's path along with trade talks with the EU after the Jan. 31 Brexit date.

"Our bias is for the pound to strengthen into the elections and for gilt yields to move higher," analysts at Legg Mason told clients.

Annual gross domestic product growth fell to 1.0% in the third quarter, weaker than the euro zone's 1.1% and well below the 2% rate Britain enjoyed before the 2016 referendum.

The Legg Mason analysts said Moody's decision on Friday to lower the outlook on Britain's Aa2 rating to negative from stable did not move the currency as it provided no additional insight. The move means there's a one-in-three chance the rating will be cut in the next 18 months to two years

"We view this as Moody’s essentially catching up with other rating agencies and analysts. A fiscal deterioration is highly likely in almost every potential political scenario going into 2020," they said.

The pound may also have been boosted by reports that Nigel Farage's Brexit Party may consider withdrawing some candidates to make it easier for the Conservative party to secure a majority in the election.

Lee Hardman, a strategist at MUFG said this offered support for the pound by clearing the way for the Conservatives to pass their Brexit withdrawal deal.

A Conservative majority would allow the pound to rise 3%, a Reuters poll found and bookies now say a Tory majority is the odds-on favourite outcome of the election

Latest positioning data also showed speculators had trimmed bets against the pound versus the dollar in the week to Nov. 5. Net short positions are now at $2.338 billion, a 5-1/2 month low, according to CFTC weekly futures data on Refinitiv. 

The net short position means the pound has more potential to appreciate on good news than to depreciate on bad news.

Sterling-dollar implied volatility gauges with one-month maturities - expiring just before the Dec. 12 election - fell slightly, but were still up from the three-month lows hit last week. 

(Reporting by Elizabeth Howcroft Editing by Peter Graff and Kirsten Donovan) ((Elizabeth.howcroft@thomsonreuters.com))