* Sterling seen slipping from two month highs
* Pound seen gaining against euro
* Pound seen at $1.57 in 12 months
By Jonathan Cable
LONDON, Oct 6 (Reuters) - Sterling is likely to slip from current two month highs against the dollar as tough austerity measures bite and speculation grows of more quantitative easing from the Bank of England, a Reuters poll showed on Wednesday.
Median predictions in the poll of more than 60 analysts at top currency dealers taken over the past week saw cable at $1.58 in one month before slipping to $1.57 in three months where it would trade through to next October.
The pound was seen gaining against the euro however, but those forecasts were downgraded from last month.
"Fiscal policy is now being tightened significantly. Short to medium term, tighter fiscal policies tend to weaken economic activity, keep rates low for longer and therefore to be negative for the currency," said Valentin Marinov at Citi.
The coalition government is due to publish a tough spending review on October 20 in a bid to drive down a huge deficit which is currently running at around 11 percent of national output and is the largest in the G20.
The Bank of England slashed interest rates to a record low 0.5 percent back in early 2009 and has since pumped 200 billion pounds into the money supply to drag the economy out of its worst recession since the Second World War.
A Reuters poll taken last week saw the chances of the BoE extending its quantitative easing programme rising as policymakers argue over the UK economy's prospects.
Speculation the U.S. Federal Reserve will also resume quantitative easing at its November policy meeting was heightened when Chicago Fed President Charles Evans was quoted on Tuesday as saying the central bank should do much more to spur the economy.
The latest forecasts were upgraded from last month's poll, which saw the pound trading at $1.54 in a year, on the uncertain outlook for the U.S. and compare to the $1.59 the pound was trading around on Wednesday.
Twelve-month forecasts ranged from $1.40 and $1.84.
Sterling volatility against the dollar was seen rising slightly over the coming month. Analysts say the divergence of forecasts in Reuters currency polls offers a leading indicator of exchange rate volatility in the following month.
POUND EURO
The pound is expected to perform better against the euro as the common currency faces its own headwinds.
The euro was seen worth 87 pence in a month, 84p in a six and 83p in a year, that compares to respective 82p, 81p and 80p forecasts in last month's poll.
"The euro is still likely to be exerting a stimulus, but that 'tailwind' is likely to be moderating during the next few quarters," said Julian Callow at Barclays Capital.
The British economy grew a surprising high 1.2 percent in the second quarter, its fastest pace in nine years, but economists see that growth tapering off to between 0.3 and 0.5 percent per quarter over the coming year as the swingeing cuts take hold.
The 16-nation bloc's economy escaped from its own deep recession but like the UK its growth pace is seen tapering off, growing between 0.3 and 0.4 percent per quarter through to the end of next year.
But worryingly for policymakers there is an increasing divergence between the recovery rates amongst member nations with recent PMI data suggesting some are sliding back into recession.
(Polling by Bangalore Polling Unit)