By Stefano Rebaudo
(Reuters) -The British pound inched up on Friday, but was still within striking distance of its 2021 low against the dollar, after the greenback pared some gains after U.S. inflation data.
The consumer price index rose 0.8% last month after surging 0.9% in October. Economists polled by Reuters had forecast the CPI climbing 0.7%
The dollar lost some ground after U.S. consumer prices increased roughly in line with expectations in November as investors, who had been bracing for much higher inflation, bet that the actual number would not change the pace of interest rate hikes.
Meanwhile, investors weighed UK's pandemic curbs and weak economic data, which dampened expectations that the Bank of England would raise interest rates soon.
Britain's economy grew by a weaker-than-expected 0.1% in October, leaving it 0.5% smaller than in February 2020, just before the country went into its first COVID-19 lockdown, the Office for National Statistics said.
The pound was up 0.1% at $1.323 against the dollar, not far from Wednesday's 2021 low of $1.3162.
It was flat at 85.41 pence against the euro.
Some analysts recently reviewed their forecasts about UK's interest rates, saying they expected the central bank to keep interest rates unchanged at next week's policy meeting and tighten from February 2020.
"However, the recent developments surrounding Omicron are now even causing doubts about a hike in February," Commerzbank (DE:CBKG) analysts said in a note to customers.
If the market believes that a rate hike is only being postponed to February, "sterling is unlikely to come under severe depreciation pressure," they added. "If the BoE gives reasons to doubt this, sterling might depreciate further."
Money market futures are now pricing in an around 40% probability of a 15 bps rate hike next week, compared with 46% on Wednesday and nearly 70% at the start of last week.
A dispute over post-Brexit fishing licences also weighed on sentiment.
France will ask the European Union to start legal action against Britain if it fails to issue more fishing licences by a Friday deadline set by the European Commission, a French minister said.