UK economic malaise weighs on sterling

LONDON, May 16 (Reuters) - The pound fell versus the euro on Friday as investors were worried by the combination of high inflation and slowing growth in the U.K. economy.

Sterling has been on the back foot this week after the Bank of England delivered a bearish prognosis on British economic prospects in its quarterly inflation report on Wednesday.

The report showed that inflation is set to remain stubbornly high in the coming months, limiting the central bank's ability to act to bolster an ailing economy with interest rate cuts.

"It's surprising that the waning expectations of rate cuts have not supported the currency more forcefully," said Philip Shaw, chief economist at Investec.

"It reflects the downside risks...and the general sense of malaise that pervades the (UK) economy."

By 1350 GMT the euro was up 0.35 percent at 79.54 pence <EURGBP=>. The pound was steady at $1.9467 <GBP=>.

Before the inflation report the Bank of England was widely seen as cutting rates by 25 basis points to 4.75 percent in June, but a Reuters poll conducted after the report found a majority predicting it would hold off from reducing them until the third quarter [BOE/INT].

Investors will look to minutes from the Bank of England on Wednesday for more insight into the next move on UK interest rates. A Reuters poll of economists forecast that eight members of the committee voted to keep rates on hold at 5 percent, while one backed a cut.

(Reporting by Simon Falush) (Editing by Ian Jones)