By Lawrence White
LONDON (Reuters) -Sterling tiptoed up on Tuesday despite data showing Britain's jobs boom is fading, as the employment report was overshadowed by weakness in the dollar ahead of an update on U.S. inflation
that could herald a softer stance from the Federal Reserve.
The dollar's hesitancy gave some respite to the pound, which has been battered in recent months by a drumbeat of bad news about Britain's faltering economy, persistent inflation and mounting energy crisis.
Official data on Tuesday showed Britain's jobless rate hit its lowest since 1974, a positive indicator at the face of it, but which in fact was down to the workforce shrinking as the economy falters.
The Office For National Statistics said the share of the population neither in work nor looking for was up because there were more people classified as long-term sick, as well as fewer students than normal moving into employment.
The report followed one on Monday that showed Britain's economy growing even less than expected in July, as the sharp increase in energy prices curbed demand.
New Prime Minister Liz Truss has sought to get a grip on the problem immediately by announcing a cap on domestic energy tariffs, albeit at a cost of adding 100 billion pounds ($117.21 billion) or more to Britain's already stretched public finances.
The pound nonetheless rose 0.2% on Tuesday morning to reach $1.1709, above its recent nadir of $1.14 hit last week, as the dollar faltered ahead of U.S. inflation data due at 1230 GMT.
If as expected the report shows inflation peaking, the Federal Reserve could begin to slow the pace of interest rate hikes, putting pressure on the dollar's recent ascendancy over other major currencies.
Sterling meanwhile edged down to 86.8 pence per euro, holding above its lowest level against the bloc's currency since 2021 of 87.215 pence which it touched on Monday.
($1 = 0.8532 pounds)
(Reporting by Lawrence White; editing by Jason Neely and Tomasz Janowski)