Pound climbs to its highest level since Brexit referendum

The Bank’s trade-weighted index, which measures sterling against a basket of 18 major currencies, reached 86.4 this week.

That matches its highest reading since the June 2016 vote to leave the EU.

The index uses the pound’s value in 2005 as a starting point of 100.

The Bank is due to officially confirm the latest figure today.

In early trading on Thursday, the pound rose 0.13 per cent against the dollar to $1.3495.

However, it fell 0.16 per cent against the euro to 1.1979.

Part of sterling’s recent strength comes from a fall in the dollar after Democrats won control of both chambers of Congress in this week’s US midterm elections.

Traders also widely expect the Bank’s nine-member Monetary Policy Committee to raise interest rates today for the first time in more than three years.

Higher rates can support the pound by making UK investments more attractive to overseas investors.

Investors have also become more positive about Britain’s wider prospects. Traders have pointed to relative political stability, improving relations with the European Union and economic growth that has exceeded forecasts this year.

However, analysts warn that the pound may struggle to keep rising.

Expectations for UK interest rate increases look high compared with other major economies, while the pound’s valuation is another concern, according to Goldman Sachs.

The bank warned that rate-rise expectations appeared “stretched relative to G10 peers, and valuation remains a clear challenge for Sterling.”

Several economists surveyed by Reuters expect the Bank of England to push back against market expectations of three to four further increases in 2027.

Even if rates rise today, a cautious message about further increases could weaken the pound in the short term, according to BofA Global Research.

“A ‘dovish hike’ would be a headwind for GBP, but we don’t expect that it would do lasting damage with fundamentals improving,” its analysts said.

Sterling has also drawn greater attention since Chancellor John Healey’s Budget, which set out tax and spending plans intended to protect households from what he called “global economic storms.”

A stronger pound carries tangible benefits for ordinary consumers, reducing the cost of imported goods and making holidays abroad cheaper.

It can also help to keep inflation in check.

Jim O’Neill, the economist and former Treasury minister, said he was unsurprised by the currency’s ascent. “People were, and to a lesser extent, are, underestimating the improving momentum in the UK,” Mr O’Neill said.

However, there are signs that not everything is moving in the right direction. Rising energy and fuel prices have begun to dent consumer confidence, even as the broader economic picture has brightened.

The pound’s journey to this point has been a turbulent one. Sterling fell sharply after the 2016 referendum and sank further during the Brexit negotiations, the Covid pandemic, and the 2022 mini-Budget.