LONDON, July 22 Reuters The pound fell against the dollar on Friday as fresh data fuelled worries about a slowdown in a UK economy that is grappling with inflation at a fourdecade high.

Britain39;s businesses grew at their slowest pace in 17 months in July and inflation pressures eased, according to an industry survey on Friday that might ease pressure on the Bank of England to deliver a big interest rate hike next month.

UK retail sales volumes meanwhile fell by 0.1 from May, official data showed, although this was better than the 0.3 monthly fall expected by economists polled by Reuters.

Sterling fell 0.4 to 1.1961 but remained above the 28month low hit last week. And it was set to end the week 0.75 higher its biggest weekly rise since late May.

The pound rose as much as 0.34 to 84.93 pence per euro, recovering from just over twoweek lows touched on Thursday after a largerthanexpected rate hike from the European Central Bank boosted the euro. 

If you39;re looking at sterling, you want to watch how the situation with spreads pans out, said Stephen Gallo, European Head of FX strategy at BMO Capital Markets.

With Italian bonds underperforming the rest of Europe, that is likely to put a ceiling of around 86 pence on the eurosterling spread, according to Gallo.

The Bank of England is also tasked with the tricky objective of taming surging prices while avoiding a harsh economic downturn.

Surging petrol and food prices last month pushed British inflation to its…