UPDATE 1-Sterling Ignoring Soaring UK Inflation

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By Joice Alves

LONDON, July 20 (Reuters) – The pound stabilized against the U.S. dollar and the euro on Wednesday after data showed Britain’s inflation hit its highest rate in 40 years, but only slightly above forecast.

Inflation data bolstered bets that the Bank of England will choose to raise interest rates by 50 basis points (bps) next month, but moves for the pound were limited as a 50 bps increase had been expected, traders said.

The pound edged up 0.1% against the euro to 85.12 pence at 1504 GMT, after slipping in earlier trade to its lowest level against the single currency since July 7.

The pound was stable against the US dollar at $1.1992, after hitting an 11-day high on Tuesday.

Bank of England Governor Andrew Bailey said a 50 basis point rise in borrowing costs – unprecedented in Britain for a quarter of a century – was on the table but not ‘locked in’ .

Annual consumer price inflation rose in June to 9.4%, its highest level since February 1982. That was up from May’s 9.1% and above the consensus 9, 3% in a Reuters poll of economists.

“UK CPI is only marginally above consensus…Today’s release will not be the key factor in tipping the BoE’s August policy decision one way or the other,” said Francesco Pesole, FX strategist at ING.

The pound should remain a function of the movements of the dollar and the euro, he added.

JP Morgan Asset Management market strategist Hugh Gimber said that taken as a whole with yesterday’s wage growth data, “it seems clear that the bar has been reached for the Bank to raise rates interest rate of 0.5% at the beginning of August”.

Data on Tuesday showed Britain’s unemployment rate held steady at 3.8% in the three months to May, while regular wage growth edged up to 4.3%, bolstering bets for a higher increase in interest rates next month.

The central bank is expected to raise rates for the sixth time since December.

Traders are also watching the race to replace British Prime Minister Boris Johnson.

(Reporting by Joice Alves editing by Rashmi Aich and David Goodman)