Pound slips but on track for biggest weekly rise in two months on BoE surprise

LONDON (Reuters) -The British pound edged lower on Friday but was on track to post its biggest weekly rise since October after the Bank of England this week became the first G7 economy to raise interest rates.

Against the U.S. dollar, the pound slipped 0.2% at $1.3289, not far from more than three-week highs of $1.3376 hit in the aftermath of Thursday's BoE rate decision. On the week, the pound was up 0.3%, which would be its biggest weekly gain since mid-October if it ends the day at that level.

The BoE stunned markets on Thursday by raising interest rates by 15 bps to 0.25%, sending gilt yields, bank stocks and the pound shooting higher.

Britain became the first G7 economy to hike rates since the onset of the pandemic, and the U.S. Federal Reserve this week also signalled plans to tighten policy in 2022. The European Central Bank only slightly reined in stimulus.

Strong UK retail sales data for November along with inflation jumping to a decade high fuelled expectations that the BoE will raise rates again in February.

"This latest data - strong retail sales and resilient consumer confidence - suggests that the demand side of the UK economy remains robust, even with higher inflation," HSBC strategists said in a note.

The bank accelerated its rate hike timetable for next year, after the decision, expecting as much as three rate hikes from the Bank of England in 2022 compared to only two earlier.

Against the euro, the pound was broadly steady at 85.08 pence.

(Reporting by Saikat Chatterjee; Editing by Susan Fenton and Angus MacSwan)