LONDON - Sterling surged against a weakening euro and also inched higher against a strengthening dollar ahead of U.S. CPI inflation data, bouncing back from a sharp slide.

After falling 1.6% on Wednesday, the pound rose 0.13% to $1.1375. Against the euro, sterling jumped 0.9% to 87.43 pence, reversing the 1% fall on Wednesday and setting the UK currency on track for its biggest daily gains against the single currency in one month.

"Sterling may have become a little oversold yesterday, which against a modestly constructive risk backdrop ahead of CPI has encouraged a modest sterling bounce," Jeremy Stretch, head of G10 FX strategy at CIBC, said.

"However, we would prefer to remain a seller of sterling rallies," he added, mentioning expectations for weak GDP figures on Friday and data showing UK house prices fell in October amid rising mortgage rates.

The outlook for the UK economy is gloomy, with the Bank of England warning last week of the risk of a two-year recession in Britain.

Investors are now waiting for Prime Minister Rishi Sunak and his finance minister Jeremy Hunt to announce their first budget programme on Nov. 17. The new government is likely preparing to announce major tax increases and spending cuts.

Sterling fell to a record low against the U.S. dollar in the wake of former PM's mini-budget in September and the Bank of England had to step in and buy government bonds to halt a firesale of assets by British pension funds.

(Reporting by Joice Alves)