By Joice Alves
LONDON (Reuters) -Sterling edged lower on Friday and was on track for its worst month against the dollar since September after the Bank of England kept its policy unchanged.
The BoE on Thursday kept the size of its stimulus programme at the same level and left its benchmark interest rate at an all-time low of 0.1%.
It also said inflation would surpass 3% as Britain's economy reopens, but the climb further above its 2% target would only be temporary.
"Sterling was the worst-performing G-10 currency after the BoE pushed back against some of the hawkish speculation that had arisen, particularly since the Fed's shift last week," said Deutsche Bank strategist Jim Reid.
Last week, sterling dropped below $1.38 against a strengthening dollar after the U.S. Federal reserve surprised markets by signalling it would raise interest rates and end emergency bond-buying sooner than expected.
Investors had hoped a more optimistic economic assessment from the BoE would push sterling back towards $1.40.
Sterling was down 0.1% against the dollar at $1.3907 at 1450 GMT, on track for its worst month against the greenback since September 2020.
News of the rapid spread of the Delta COVID-19 variant in Britain has also weighed marginally on sentiment.
England has delayed the final phase of its economic reopening by a month to July 19, aiming to use the extra time to speed up its vaccination programme.
In the meantime, British retailers reported a jump in sales in June as the vaccination push encouraged shoppers to go out and spend.
But cases are rising. On Thursday, Britain recorded the highest number of new coronavirus infections since early February.
Investors are also watching a dispute between Britain and the European Union over post-Brexit trade in the British province of Northern Ireland.
Against the euro, the pound was 0.3% lower at 85.90 pence, after hitting a nine-day low.
Jeffrey Sacks, EMEA Head Investment Strategy at Citi Private Bank, said he favoured sterling over the euro.
"Sterling continues to benefit from inflows driven by pent-up demand for all asset classes and is inexpensive in valuation terms," he said.
(Reporting by Joice Alves; Editing by Kevin Liffey and Alex Richardson)