(Reuters) - Sterling edged up against the euro on Friday, as some investors bought the pound on expectations that UK growth data next week could highlight that the British economy is outperforming the euro zone. While the euro zone economy is grappling with a recession, the British economy is forecast to have expanded by 0.6 percent in the second quarter from the previous quarter and grown 1.4 percent on the year. Second-quarter gross domestic product (GDP) data is due on Thursday. The pound's gains are likely to be held in check, however, as the Bank of England is expected to keep monetary policy accommodative despite an improvement in economic data. The euro was down 0.2 percent at 85.95 pence, having fallen to 85.90 pence. Its losses took it well below Wednesday's four-month high of 87.12 pence. "We suspect that hot prints in UK data over the coming two weeks will open the door to speculative bets of sterling appreciation," said Stephen Gallo, European head of FX strategy at BMO Financial Group, referring to upside risks to GDP data. But he added that until rhetoric from the Bank shifted towards a more hawkish bias or inflation picked up substantially, sterling strength on the back of better activity data would remain "rather limited". Against the dollar, sterling was up 0.2 percent at $1.5255 with offers to sell cited at $1.5270. The pound is on track for its second straight week of gains. A bigger-than-expected rise in UK retail sales in June, improving labour market conditions and minutes from the Bank of England's last meeting, which unexpectedly showed all nine Bank rate-setters opposed to expanding its bond-buying programme, has given a lift to the pound in the past few sessions. Despite the gains, investors remain cautious as the Bank is expected to give "forward guidance" next month and pledge to keep rates low until a more sustainable recovery is in place. "The minutes suggest the Bank is set to introduce a more formal forward guidance framework, most likely in August," Morgan Stanley analysts said in a note. "Given that sterling has historically been the G10 currency most sensitive to changes in rate expectations, we expect renewed weakness over the medium term. We view near-term rebounds as providing renewed selling opportunities." (Reporting by Anirban Nag; Editing by Gareth Jones and Susan Fenton)

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