Sterling down vs dlr, UK industrial output data eyed

* Sterling down 0.4 percent at $1.9740 <GBP=>

* Manufacturing, industrial output data awaited

LONDON, July 7 (Reuters) - Sterling fell against the dollar on Monday, weighed by a bleak outlook for the UK economy and the bind faced by Bank of England policymakers meeting later this week.

The pound has been knocked by gloom in the UK housing, banking and retail sectors as companies feel the pinch of a slowing economy.

Slowing growth poses the Bank of England a sharp dilemma as it also faces inflation running well above target.

Even though inflation is a real concern, policymakers are widely expected to hold UK borrowing costs at five percent when this months policy meeting concludes on Thursday, a Reuters poll found [BOE/INT].

"The picture of the UK economy in serious trouble is almost complete. The data from the real economy is horrible, so they (BoE) can't move rates," State Street currency strategist Lee Ferridge said.

By 0728 GMT, the pound was down 0.4 percent at $1.9740 <GBP=>. Against the euro it was steady at 79.18 pence <EURGBP=>.