Sterling subdued ahead of UK retail sales data

* Graphic: Sterling and gilt yields

* Graphic: World FX rates in 2017

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, May 18 (Reuters) - Sterling edged lower against the dollar on Thursday as investors awaited a further reading on consumer spending in Britain, now seen slowing after it propped up the UK economy in the months following the Brexit vote.

High inflation owing to sterling’s plunge after the EU referendum and stubborn wage growth since the 2008 financial crisis have crimped consumers’ spending, with British retail sales posted the biggest quarterly fall in seven years during the first three months of 2017.

Sterling was 0.1 percent lower at $1.2962 by 0737 GMT, after again testing the $1.30 mark on Wednesday.

It was 0.2 percent higher at 85.895 pence per euro.

Retail sales for April are expected to increase 1 percent, according to a Reuters poll of economists.

Investors note the retail sales data has become increasingly volatile, making identifying a trend difficult. The late timing of Easter this year has also added to seasonal adjustments for the data, analysts said.

“Any indication of domestic demand conditions to have weakened by more than anticipated is likely to keep the medium-term price outlook capped,” Credit Agricole strategists wrote in a note to clients.

“As such incoming data may support the BoE’s view about higher inflation as being temporary. From that angle we see scope of central bank monetary policy expectations to remain broadly capped and such prospects are likely to prevent the pound from facing bigger upside risks.”

Reporting by Ritvik Carvalho; editing by Ralph Boulton