October 29, 2018 / 9:07 AM / 20 days ago

Sterling stuck near two-month lows before UK budget speech

* Hammond to signal possible end to austerity with Brexit deal

* BoE meets on Thursday; rates set to left unchanged

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Oct 29 (Reuters) - The pound inched down to just above two-month lows on Monday as traders prepared for the British finance minister’s annual budget speech later in the day.

Philip Hammond will use his speech to urge his divided Conservative Party to back the government’s plan for a Brexit deal, or put at risk a long-awaited easing of austerity.

After a decade of cuts to public services, Hammond is expected to offer a glimpse of higher spending. But he will also make clear that more spending will hinge on London agreeing with Brussels on the terms of its exit from the European Union in March.

The currency fell 0.1 percent to $1.2817, close to two-month lows of $1.2777 touched last week.

Against the euro, the pound traded flat at 88.880 pence per euro.

Sterling traders will also be focused on the Bank of England monetary policy meeting on Thursday.

“Were it not for Brexit, the BoE on Thursday would probably be providing guidance on a rate hike, possibly in February given the compelling evidence of rising wage growth,” MUFG analysts said in a note.

Simon Derrick, chief currency strategist at BNY Mellon, said that pricing in sterling options markets signalled increasing concern about the outlook for the currency heading into 2019 and ahead of the Brexit departure date in March.

“Since the October 17 EU summit, however, renewed outflows have begun to emerge as investors have become steadily more concerned about the lack of agreement between the EU and UK on the divorce deal,” he said. (Reporting by Tommy Wilkes, editing by Larry King)

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