LONDON, Aug 24 Reuters The pound declined against the dollar and euro on Thursday, a day after data showed a contraction in British activity in August, prompting markets to trim expectations for further rate hikes from the Bank of England.

Sterling was last at 1.2671 , down 0.5 on the day.

Wednesday39;s soft activity data, which also showed the slowest growth in output prices since February 2021, had traders betting that the BoE will not need to raise rates as high as previously thought to bring inflation back down to target.

The central bank has so far raised interest rates 14 times since December 2021, taking them to a 15year high of 5.25.

Money market traders still expected the BoE to raise its interest rate to 5.5 next month, but futures now price just a oneinthree chance that rates will hit 6 compared with an over 50 chance seen before yesterday39;s activity data.

What the data showed yesterday is that the UK is not isolated to the global growth slowdown, said Simon Harvey, head of foreign exchange FX analysis at Monex Europe.

Markets are readjusting to the lower growth profile, taking some of the bets off the table for the Bank of England39;s tightening cycle and that39;s filtering through, Harvey added.

A Reuters poll meanwhile narrowly found that economists expect the BoE39;s interest rate to peak at 5.50, down from 5.75 predicted in July.

The pound also slipped 0.3 against the euro with the single currency last buying 85.63 pence.

ING39;s global head…