Sterling held steady versus the dollar on Tuesday, away from two-week lows set last week, as strong retail sales data indicated that the UK economy may not be in such a bad shape as many investors had feared.

Retail sales in the UK last month were 2.6 percent higher than in January on a like-for-like basis last year and the highest since September.

The strong retail data, combined with figures on Monday showing factories faced the highest inflation pressure on record, is removing some of the impetus for the Bank of England to cut interest rates.

"(Sterling's) been doing better the last couple of days. What we've seen on cable is the market having to revise how deeply the BoE will cut during the cycle on the back of the PPI numbers yesterday and the overnight the BRC retail survey," said Daragh Maher, senior currency strategist at Calyon.

At 0837 GMT, the pound was steady at $1.9514, well above a two-week low of $1.9386 set last week. The euro was also flat at 74.38 pence.

UK CPI data at 0930 GMT will give investors further evidence on whether inflationary pressure will limit the BoE's ability to cut rates to boost the economy. Economists polled by Reuters forecast a fall in prices of 0.6 percent on the month, bringing annual CPI to 2.3 percent, up from 2.1 percent in December.

"I think there's a slight chance to get a number a little bit higher than (2.3 percent) because of higher food and energy (prices)," Maher said. "That would add to the theme we've had over the last couple of days that the BoE won't cut as deeply or as steeply as the market thought previously."

However, the outlook for the UK economy is still uncertain. Construction activity in the UK fell for a third straight month in January, a survey from property services firm Savills showed, and respondents were negative about the outlook for the next three months.

Sourced by Reuters.