LONDON, Oct 31 Reuters The British pound was strengthening against a weaker dollar on Tuesday but still on track for its third straight monthly drop as traders looked ahead to the Bank of England39;s policy announcement on Thursday.

Britain39;s central bank is expected to keep interest rates unchanged at a 15year high of 5.25 when it announces policy this week, amid signs that the labour market is cooling even as it faces an inflation rate more than three times as high as its target.

The British Retail Consortium said annual shop price inflation dropped to 5.2 from 6.2 in September, its weakest since August 2022, supporting the view that the BoE will refrain from policy changes at this meeting.

The BoE won39;t hike this time around, said Dane Cekov, senior macro and FX strategist at Nordea.

Money market traders are betting that the BoE is finished with rate increases in this tightening cycle, with rate cuts priced towards the end of next year.

Most economists also said the BoE is likely to be done with tightening and will leave the Bank Rate at 5.25 later this week, a Reuters survey found.

By 1126 GMT, the pound was up 0.2 versus the dollar at 1.2190 but was still on track for a third consecutive monthly loss.

Sterling was last at 87.48 pence per euro , down around 0.3 on the day.

Against the yen, the pound was up 1.4, on track for its biggest daily gain against the Japanese currency since July, after the Bank of Japan made only a small tweak to its yield curve…