By Harry Robertson
LONDON (Reuters) -The pound slipped on Wednesday after data showed British inflation cooled by much less than expected in April.
Sterling initially rose after the data, which adds to the pressure on the Bank of England to raise interest rates but was last down 0.17% at $1.239.
Britain's year-on-year inflation rate slowed to 8.7% in April from 10.1% in March. Economists polled by Reuters expected a drop to 8.2%.
Core inflation, which strips out volatile energy and food costs, unexpectedly jumped to 6.8%, a 31-year high.
"The reason that you haven't seen more of a reaction today is the context," said Ben Laidler, global markets strategist at trading platform eToro, referring to the pound.
"The pound's already had a big rally this year … and the dollar's already on the front foot. The debt ceiling showdown is just picking up steam and the dollar is picking up some safe haven flows."
Democrat and Republican negotiators ended another round of debt ceiling talks on Tuesday with no sign of progress.
That helped push the dollar, which is seen as a "safe haven" at times of stress, to a two-month high on Tuesday.
Dollar strength has seen the pound fall about 2% since hitting a one-year high of $1.268 on May 10.
The Bank of England raised interest rates to 4.5% earlier this month.
Traders on Wednesday saw a 94% chance that it would raise borrowing costs by 25 basis points again in June, according to pricing in derivatives markets, up from around 80% on Tuesday.
The euro initially slipped against the pound after the inflation data but reversed course and was last up 0.2% at 86.92 pence.
Some analysts have raised the prospect that Britain's high inflation will soon become a problem for the pound.
Although currencies tend to rise if investors think a central bank will raise interest rates, inflation's impact on the UK economy could soon outweigh that effect.
"The (fall in the) headline number looks great but you scratch the surface and there's nothing to be happy about," said Laidler.
"If you're the Bank of England I think it's pretty much the worst-case scenario."