LONDON, Oct 8 (Reuters) - Sterling slipped against the dollar on Monday, as traders remained pessimistic about its outlook, with markets increasingly pricing in chances of a British interest rate cut before the year end.

Volume was generally thin, traders said, due to public holidays in Japan, the United States and Canada.

Most market participants are convinced there is a strong risk of a British economic slowdown, with the housing sector particularly vulnerable.

"It's difficult to look at the UK economy and be bullish on sterling, and that's both against the dollar and euro," said Nick Parsons, head of markets strategy at nabCapital. "The next focus would be on lower growth prospects in the UK which should put pressure on the Bank of England to cut rates."


Last Thursday, the BoE held interest rates at 5.75 percent, but many people expect it to cut them later in the year as a credit crunch in global markets starts hitting the wider economy.

By 0726 GMT, the pound was down slightly against the dollar at $2.0394 <GBP=>. The euro was flat at 69.16 pence <EURGBP=>.

Sterling was at 102.8 on the Bank of England's trade weighted index <=GBP>.

Later in the session, UK industrial output and producer prices are due at 0830 GMT and these reports could partly shed light on the outlook for the British economy and where interest rates are heading.

Industrial output is seen rising 0.3 percent on the month and 0.9 percent on the year in August. Manufacturing is expected to have expanded 0.3 percent on the month for an annual rise of 0.5 percent on the year.

On the other hand, the forecast for core September producer prices was a gain of 0.2 percent on the month and 2.4 percent on the year.

"Depending on what comes out later today, we will be looking to sell into any strength in sterling as a result of PPI (producer prices) and industrial production. We think we're not going to make any new high in cable and it's very likely that $2.0480-90 is going to put a very strong lid on sterling," Parsons said.

Source supplied by: Reuters