20.08.201400:22:05UTC+00Sterling gets pounded on sluggish inflation

The British pound dropped to a four-month low versus the US dollar Tuesday on sluggish inflation and as slower than awaited growth in consumer prices pressed investors to get back their bets on an early interest rate hike by the Bank of England.

Low inflation was one of the setbacks for the sterling in which it reached a six-year high in July as economic recuperation cemented the stance the BOE would be the first major central bank to increase rates.

The Office for National Statistics reported the annual inflation rate dived to 1.6% in July.

The currency declined 3.3%, to $1.661. It has dropped 3.3% versus the greenback from its recent peak logged on July 15.

"From the perspective of rate-hike timing, today's data are potentially significant. With earnings growth so subdued and with inflation likely to remain below 2% for the rest of 2014, the likelihood is that the first…rate hike can be held off until February 2015," said Sam Hill, Senior UK Economist at RBC Capital Markets.