Sterling edges higher, UK retail sales awaited

LONDON, May 22 (Reuters) - Sterling edged higher on Thursday, but stayed near a one-month low against the euro before UK retail sales data that may suggest more sluggishness in consumer spending as the economy continues to weaken.

The data due at 0830 GMT is expected to show sales falling 0.5 percent on the month in April, trimming the annual rise to 4.2 percent and bolstering the view that a housing downturn has prompted more consumers to tighten their purse strings.

Additional signs of weakness would complicate matters for the Bank of England as it tries to balance an economic downturn with rising inflation risks. Market participants have trimmed expectations of a rate cut in the coming months.

Some in the market say grim economic figures may raise the case for lower rates, even as the central bank has been seen to be signalling that a cut will be difficult due to ongoing price pressures. Either way, the toxic mix of inflation and a weak economy would likely push sterling lower, analysts said.

"A weak sales figure may show that the Bank of England has been a little too hawkish and that growth momentum is stalling considerably," said Stephen Koukoulas, global strategist at TD Securities. "The weaker the economy becomes, the more inflation pressures will be intensified and we still see more downside in sterling."

By 0740 GMT the euro was down 0.14 percent at 79.96 pence <EURGBP=>, within sight of the 80.34 pence touched on Wednesday for the first time since late April.

Sterling also recovered a little ground against a dollar, which was pressured by a rise in oil prices to a record high. The pound traded at $1.9745 <GBP=>, near a one-month high of $1.9753 hit earlier in the day.

Minutes released on Wednesday from the BoE's Monetary Policy Committee meeting earlier this month showed that only policy dove Daid Blanchflower voted for a 25 basis point rate cut from 5 percent, further dampening expectations for a cut next month.

Investors have pared back their outlook on the extent of monetary easing from the BoE after a quarterly inflation report last week showed inflation rising close to 4 percent this year despite a slowing economy. (Reporting by Naomi Tajitsu; editing by Stephen Nisbet)