Sterling looks through cooler inflation data, BoE meeting in focus

LONDON, June 17 (Reuters) - The pound largely shrugged off softer-than-expected British inflation data on Wednesday as traders waited for the following day's labour market data and Bank of England meeting before recalibrating their view on the currency.

Sterling was last down marginally on the dollar at $1.3411 and, while it briefly hit a near-two-week low on the euro, it was last broadly steady at 86.48 to the common currency.

British inflation held at 2.8% in May, unchanged from April's 13-month low and below forecasts from economists and the Bank of England, official figures showed.

"If economists begin to think the peak (in inflation) will be lower, maybe the BoE could get away without hiking at all this year," said Jane Foley, head of FX strategy at Rabobank.

"Though we need to keep watching the data for the next set at least, and watch the voting pattern tomorrow."

The Bank of England meets on Thursday. It is expected to hold rates steady, but one or two of the nine rate-setters, including chief economist Huw Pill, are expected to vote for a hike.

Markets currently see the BoE raising rates once this year. Should they shift and price that out, that would weigh on the pound, all else being equal.

Thursday will be an important day for British markets. As well as the BoE there will also be labour market data, which will further shape central bank policy for the rest of this year, and a key by-election.

Andy Burnham, the Greater Manchester mayor, is trying to return to parliament to challenge Prime Minister Keir Starmer for leadership of the ruling Labour Party.

Burnham is seen as more interventionist than the struggling Starmer. Analysts say the potential switch comes at a delicate moment for Britain, with fiscal headroom limited and memories of the 2022 market turmoil under then-prime minister Liz Truss still raw.

Should Burnham win the election, some political risk premium may be priced into the pound, ING currency analyst Francesco Pesole said.

(Reporting by Alun John; Editing by Kevin Liffey)