Pound off 21-mth low against the dollar

LONDON (Reuters) - The pound bounced off a 21-month low against a retreating dollar on Wednesday as investors focused on the Bank of England's key inflation report which could deepen worries over growth.

After data on Tuesday showed a surge in inflation to more than double the Bank of England's 2 percent target, the twin pressures of rising prices and slowing growth will confront investors again with the release of the Bank's quarterly report.

While the inflation profile is expected to be raised for this year, an expected downward revision to growth might ratchet up speculation of a nearer-term rate cut from 5 percent.

"There's an asymmetry at the moment for sterling with regard to interest rates because if you get an upside surprise in inflation, it somewhat reduces the likelihood of a cut but it also shows the squeeze faced by consumers and the real economy," said Daragh Maher, deputy head of global foreign exchange research at Calyon.

"The report will probably show there's quite a bit of division within the MPC on where the emphasis for policy should be -- the upside risks to inflation or the downside risks to growth," he said.

The inflation report is due at 10.30: a.m.

By 8:35 a.m., the pound was up 0.3 percent versus the dollar at $1.9029, having earlier fallen to $1.8923 -- its lowest since November 2006 according to Reuters data.

The U.S. currency fell broadly as investors viewed its recent surge as being too fast, to soon.

Against the euro, sterling was flat at 78.62 pence.