Sterling hits 2-mth low vs dlr on UK rate outlook

LONDON, May 9 (Reuters) - Sterling fell to its lowest in two months against the dollar on Friday as investors looked past the Bank of England's decision to hold rates steady this month and focused on the high possibility of an easing in June.

Grappling to balance rising inflation from soaring food and energy prices with a sharp economic slowdown stemming from the global credit crisis, the BoE's monetary policy committee left borrowing costs at 5 percent on Thursday after a 25 basis point cut last month.

But a welter of poor UK data from housing to retail sales has left analysts convinced a cut is on the cards next month, potentially eroding the pound's yield appeal.

"I don't think the BoE is fooling anyone. It's clear that the data are weakening more quickly than the bank probably had thought," RBS strategist Paul Robson said.

"It will be important to see what the (BoE quarterly) inflation report says. If it just says the bank will need to cut rates twice to get inflation back down to target then they are likely to move sooner rather than later," he added.

By 0752 GMT, sterling was down 0.1 percent on the day, having hit a 2 month low earlier at $1.9497 GBP=. The euro was up 0.4 percent at 79.09 pence EURGBP=.

The bank's quarterly inflation report is due out next Wednesday, while further clues on the economic outlook will also come with consumer price index data for April.

Most analysts polled by Reuters before Thursday's decision predicted rates would fall to 4.75 percent in June [BOE/INT].

(Reporting by Veronica Brown; Editing by Chris Pizzey)