© Reuters. FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier/Illustration/File Photo

By Stefano Rebaudo

(Reuters) – The British pound inched down on Friday to within striking distance of its 2021 low against the dollar, as the UK’s pandemic curbs and weak economic data 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 dollar was firm as traders wagered U.S. inflation figures could settle the course of interest rate rises next year.

The pound was down 0.1% at $1.3211 against the dollar, not far from Wednesday’s 2021 low of $1.3162.

It was flat at 85.43 pence against the euro.

Some analysts recently reviewed their forecasts about UK 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:) 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 a 38% 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’s Junior European Affairs Minister Clement Beaune said Britain tried to isolate France, but the bloc stood united. He added that France would ask the European Union to start litigation if the fishing issue is not resolved by a Friday deadline.

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