LONDON, Aug 17 Reuters The British pound was steady on Wednesday as data showed inflation climbed to its highest level in more than four decades in July, heaping pressure on the Bank of England to bring down prices but increasing the risk of a sharper economic slowdown.

Consumer price inflation rose to 10.1 in July, its highest since February 1982, official figures showed. A Reuters poll showed economists had expected inflation to rise to 9.8.

Higherthanforecast inflation supports the view that the Bank of England BoE will follow up last month39;s 50 basis point rate rise with a second consecutive halfpoint increase in September.

Money markets are now fully pricing in a 50 basis point rate rise from the central bank next month, with outside chances of a larger 75 basis point rate hike, according to data from Refinitiv.

Traders are now also pricing in a further 200 basis points of tightening by May next year, taking the Bank Rate to 3.75. Prior to labour market data on Tuesday, traders expected interest rates to peak in March with a further 150 basis points of tightening, Refinitiv data showed.

Even with inflation running at its highest level in decades, analysts said the outlook for the pound remained bleak as frontloading rate rises increased the risk of a hard landing for the economy.

Sterling is highly correlated to UK recession risks right now, said Viraj Patel, global macro strategist at Vanda Research, who said that Wednesday39;s data is likely to lead to…