LONDON: Sterling drifted lower against the dollar on Thursday as data showing resilient British business activity in March failed to prop up the currency for which traders are now anticipating a slower pace of monetary tightening by the Bank of England.

By contrast, buoyant U.S. job data fuelled speculation the Federal Reserve would raise interest rates by half a percentage point at its next policy meeting in May, giving the greenback a boost.

At 1600 GMT, sterling was 0.16% lower against the dollar at $1.3186 and 0.22% down versus the euro at 83.47 pence after hitting a two-week high against the common currency on Wednesday.

Britain’s private sector reported the steepest rise in prices charged by companies since at least 1999 while the S&P Global/CIPS composite Purchasing Managers’ Index (PMI), a gauge of economic growth, edged down just slightly to 59.7 from a historically high 59.9 in February.

Data showed a similar picture for the euro zone with business growth stronger than expected as prices rose at a record pace.

“I would be wary of buying into the better headline aggressively”, commented Jeremy Stretch, head of G10 FX strategy at CIBC, noting that there were still a lot of uncertainties as to how inflation would cut into the disposable income of British consumers.

British finance minister Rishi Sunak cut fuel duty and softened some of a looming payroll tax increase on Wednesday as he sought to alleviate a severe cost-of-living squeeze against the backdrop of slowing economic growth.

But with inflation set to hit a 40-year high of nearly 9% later this year, government forecasters said Britons faced the biggest hit to their living standards since records began in the late 1950s - even after Sunak’s measures.

The Bank of England hiked its interest rate by 25 basis points on Thursday but signalled a possible slower pace of tightening.