Aug. 16 (Bloomberg) -- The British pound traded close to its lowest in a month against the euro on speculation higher interest rates are slowing the economy, quelling house price inflation and damping consumer spending.

Retail sales probably fell 0.3 percent last month after rising 1.1 percent in June, according to the median forecast of 30 economists surveyed by Bloomberg. The Royal Institution of Chartered Surveyors may report the slowest pace of increase in house prices in a year on Tuesday, a separate survey showed.

``We think sterling will underperform against the euro'' in the coming month, said Marios Maratheftis, a currency strategist in London at Standard Chartered Plc.

Against the euro, the pound traded at 67.10 pence per euro as of 9:01 a.m. in London, from 67.11 late on Friday, when it fell as low as 67.28, the lowest since July 5. The pound also traded at $1.8407 against the dollar, from $1.8423.

The Bank of England last week predicted growth in Europe's largest economy will slow to a 2 percent pace in two years' time, after expanding a forecast average 3.5 percent this year. The projection came in its quarterly inflation report.

On Wednesday, the U.K. central bank will release minutes of its Aug. 4-5 policy meeting, at which it lifted its key rate by a quarter percentage point to 4.75 percent.

The report is ``unlikely to give a boost to the pound, pointing to less aggressive tightening policy going forward,'' predicted currency strategists at Calyon, led by Mitul Kotecha in London, in a morning report to clients.

``This will leave the pound vulnerable to potentially disappointing July retail sales numbers Thursday, which would lead markets to believe that the BOE's tightening policy is starting to have an impact on UK consumer spending,'' wrote strategists at Calyon, the investment-banking unit of Credit Agricole SA, in the report.

Retail Sales

Calyon's ``trade of the day'' is to sell the pound against the euro, targeting a decline to 67.80 pence. Calyon recommended closing the bet should the pound advance to 66.50 per euro.

The retail sales figures will be released at 9:30 a.m. on Thursday by the government statistics office. The Royal Institution of Chartered Surveyors publishes its poll of property surveyors at half past midnight Tuesday. There are no data scheduled for release in the U.K. today.

Interest-rate futures show traders have pared expectations for how high the Bank of England may raise its benchmark interest rate in coming months. The bank has lifted the rate five times since November in quarter-point moves.

The yield on the December U.K. interest-rate futures contract has shed 15 basis points in the past two weeks to close at 5.12 percent on Friday. The contract settles at three-month U.K. Libor, which since 1987 has averaged 13.8 basis points above the central bank's key rate.

To contact the reporter on this story: Lianne Gutcher at lgutcher@bloomberg.net.

Last Updated: August 16, 2004 04:03 EDT