The British pound has climbed to its highest overall level since the 2016 Brexit referendum, supported by improved economic prospects and expectations of an interest rate increase.
According to Bank of England figures cited by the BBC, sterling’s value against a basket of 18 major global currencies reached 86.4 points this week on an index where 100 represents its value in 2005.
The reading marks the currency’s strongest overall position since June 2016, when British voters backed the country’s withdrawal from the European Union.
The pound suffered a significant decline following the referendum and experienced further periods of weakness during the Brexit process, the COVID-19 pandemic and the UK’s 2022 mini-budget crisis.
However, recent gains have been attributed partly to improved perceptions of Britain’s economic outlook, relative political stability and renewed engagement with the European Union.
Economist and former UK Treasury minister Jim O’Neill said the improvement reflected stronger economic momentum that markets had previously underestimated.
“I’m not surprised. People were, and to a lesser extent, are, underestimating the improving momentum in the UK,” he said.
A stronger pound can help reduce the cost of imported goods, ease inflationary pressures and increase the purchasing power of British consumers travelling abroad.
The currency’s performance comes as the UK economy has recorded stronger-than-expected growth this year, although rising energy and fuel prices have begun weighing on consumer confidence.
Investors are also watching the Bank of England’s Monetary Policy Committee, which is expected to make an important interest rate decision on Thursday, November 5.
At 04:15 GMT on Thursday, sterling was trading 0.13 per cent higher against the US dollar at $1.3495, while it was down 0.16 per cent against the euro at €1.1979.
The Bank of England was expected to officially confirm the latest trade-weighted currency index calculation later on Thursday.
