Market News

By Samuel Indyk

LONDON, Sept 12 (Reuters) - The British pound was steady on Thursday after hitting a three-week low against the dollar the day before after data showed the UK economy stagnated in July, while focus turned to next week's key inflation print and central bank meeting.

Sterling was little changed on the day at $1.3052 and trading in a tight range, just above the $1.30025 it reached on Wednesday, its lowest since Aug 20.
Data on Wednesday from Britain's Office for National Statistics showed no change in economic output in July. A Reuters poll of economists had forecast a 0.2% month-on-month expansion.

But while growth has stalled in Britain in recent months, the economy has still shown more robust growth than the euro zone since the beginning of the year.
"If we look at the PMIs (purchasing managers' indexes), we continue to see downside surprises for the euro area whereas you look at Britain and there are continued top side surprises," said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.
Against the euro , the pound was also little changed at 84.4 pence before today's European Central Bank (ECB)interest rate decision, where a quarter-point rate cut is widely expected.

Meanwhile, the Bank of England meets next week, and futures markets imply around an 80% chance that interest rates remain on hold, after a 25 basis point rate cut in August.
"I think they will only deliver one more cut this year," Danske Bank's Kundby-Nielsen added.
"That will play an important role and is set to support the pound," she added, as the ECB and Federal Reserve look set to lower interest rates more aggressively.

The next key input for the BoE will be Wednesday's inflation data, released the day before its policy announcement.

UBS analysts believe headline inflation will remain steady at 2.2% but volatile components could lead to a pick-up in services inflation to 5.5%.
"We think the latest inflation prints should not have a significant impact on the MPC's assessment of the inflation outlook," UBS said, referencing the BoE's monetary policy committee.

"Against this backdrop, we expect the majority of the MPC to vote in favour of keeping rates on hold next week with a 7-2 vote split."