* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Patrick Graham
LONDON, June 27 (Reuters) - Sterling inched higher against the dollar on Tuesday ahead of the Bank of England’s Financial Stability Report, looked to for moves to cool areas of credit that might help policymakers hold off for longer with any rise in interest rates.
The defection by several Monetary Policy Committee officials to the camp supporting a rise in base interest rates has given the pound, battered by another round of political uncertainty after this month’s elections, some support in the past week.
On the one hand, reinstating the 0.5 percent of risk-weighted assets banks are asked to hold as a buffer against shocks to consumer finances would be a sign of confidence in an economy which has looked to be slowing.
But it might also take any unwanted steam out of loan growth which could be cited as one reason for raising rates.
Sterling inched 0.2 percent higher to $1.2742 in morning trade in London, but was 0.4 percent weaker against a euro boosted by comments from European Central Bank chief Mario Draghi.
“The reaction probably depends to a large degree on what (BoE Governor Mark) Carney says,” said Derek Halpenny, a strategist with MUFG in London.
“You could on one side argue that on one side that raising the counter-cyclical buffer heads off a rate rise and is sterling negative. On the other hand it does show some faith in growth. My feeling is reaction may be minimal.”
Halpenny has been one of the bank analysts calling for a rise in sterling in recent months, judging the worst of the pound’s Brexit-led sell-off is now in the price.
But he also says the uncertainty generated by Prime Minister Theresa May’s loss of her parliamentary majority in elections on June 8 has made it harder for sterling to rise in the near term.
May has sealed the deal she needs to approve a stripped-down legislative programme, but many political commentators still expect another election to be called in the next year under a new Conservative leader. (Editing by Ed Osmond)