UPDATE 2-Sterling falls as inflation data offers little comfort on rate front

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LONDON, July 19 (Reuters) - Sterling fell 1 percent against the dollar on Tuesday, as higher than forecast British inflation numbers for June did little to alter expectations that the Bank of England would ease monetary policy as early as next month.

The pound was also hit by a firmer dollar which hit a four-month high against a basket of currencies. The dollar rose after data showed U.S. housing starts surge 4.8 percent to a seasonally adjusted annual pace of 1.19 million units.

Sterling was trading 1 percent lower at $1.3124, retreating from a two-week high of $1.3344 struck on Friday. It had gained on Monday too on expectations of hefty inflows from SoftBank’s deal to buy British technology company ARM.

The euro was up 0.4 percent at 83.91 pence.

The muted reaction to the inflation data was more evidence that investors will tend to sell any rise in the pound in expectation of a grim economic aftermath to last month’s Brexit vote.

“If we hadn’t had the Brexit vote, we would have seen a half cent move up on that figure,” said Tobias Davis, head of corporate treasury sales at Western Union in London.

The pound saw its best performance since 2009 last week as many of those who had sold the pound in a 14-percent slide after the referendum took some of the profit they had earned in the process. It also gained around a third of a percent on Monday.

But the consensus of banks’ forecasts is for the UK currency to fall to $1.28 in three months and $1.2650 in six as the uncertainty of an extended period of EU exit talks hurts the economy and the Bank of England eases monetary policy further.

“We still expect the pound to trade lower in the next couple of quarters,” said John Hardy, head of FX strategy at Saxo Bank.

“On the other hand, if we see the government and Bank of England focus on fiscal stimulus and steer away from rate cutting, the pound will bottom up quickly and we could see it rebounding.”

The Bank of England’s decision last week to hold off on any immediate easing until at least August has given many of those betting against sterling pause for thought.

“We stay of the view that the pound faces further upside risks unless incoming data makes a case of further rising easing expectations,” Credit Agricole analysts said in a note. “This is especially true as elevated short positioning keeps position squaring related upside risks intact.”

Net short positions - bets on the pound depreciating - are at their highest since June but still short of other highs hit in six months of fevered speculation about the chances of a Brexit.

The options market in which many hedge fund players take cheap speculative positions and companies hedge against currency moves has also returned to something resembling normality. (Additional reporting by Patrick Graham; Editing by Andrew Heavens and Hugh Lawson)