(Corrects price in par 5)
* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Ritvik Carvalho
LONDON, March 21 (Reuters) - Sterling rose against the dollar on Tuesday, as investors awaited data expected to show continued rising prices in Britain as the country readies to kick off divorce talks with the European Union next week.
Strong consumer spending was behind the British economy’s surprising resilience in the months immediately following the United Kingdom’s unexpected vote last June to leave the European Union.
However, a weakened pound has caused a rise in domestic inflation, with a stream of consumer data showing Britons less ready to spend on non-essential items.
Tuesday’s inflation data at 0930 GMT is expected to overshoot the Bank of England’s target of 2 percent, with a Reuters poll of economists forecasting a 2.1 percent year-on-year rise in prices.
Sterling was up 0.4 percent at $1.2416 in London morning trade.
It was 0.1 lower against the single currency at 87 pence per euro.
“Typically higher inflation has been bearish sterling to the extent that it pushes UK real yields lower,” said Sam Lynton-Brown, currency strategist at BNP Paribas.
He forecast a 2.2 percent year on year rise in inflation.
“But we’d argue with the change in the BoE’s (Bank of England‘s) message last week to become more hawkish, if we get an upside surprise to inflation, UK front end nominal rates should price in a greater likelihood of a BoE rate hike and therefore sterling shouldn’t weaken.”
The Bank of England surprised markets last week when one of its policymakers unexpectedly voted to lift interest rates in a break with the consensus of keeping rates at a record low.
Some other members of the Bank’s monetary policy committee also gave a hawkish tilt to the Bank’s rhetoric, saying it would not take much for them to follow suit if inflation continued to shoot up.
Currency analysts at Credit Agricole said any gain for sterling in response to an upside surprise in inflation numbers would prove short-lived.
“If anything it must still be noted that medium-term inflation expectations seem to be well anchored and such prospects are likely to keep the BoE neutral on rates, irrespective of last week’s hawkish twist,” currency analysts at Credit Agricole wrote in a note to clients.
“We stay in favour of selling currency rallies, especially as actual uncertainty with respect to Brexit is unlikely to fall considerably anytime soon.” (Editing by Mark Trevelyan)