The pound has reached its highest overall level since the 2016 Brexit referendum, supported by stronger recent UK economic performance and expectations of a Bank of England interest rate rise. Sterling’s trade-weighted index reached 86.4, according to Bank of England figures, matching its highest level since the referendum.
Sterling Reaches Nine-Year High
The trade-weighted index tracks the pound against a basket of 18 major currencies, with 100 representing its value in 2005. Sterling fell sharply after the Brexit vote in June 2016 and experienced further periods of weakness during the Brexit process, the Covid pandemic and the 2022 mini-Budget crisis.
Its recent recovery marks a notable shift from those earlier periods of pressure.
Pound Gains Against Major Currencies
Sterling has strengthened in recent weeks against both the euro and US dollar. At 04:15 GMT on Thursday, the pound was trading at around $1.3495 against the dollar, up 0.13%.
Against the euro, sterling stood at around €1.1979, down 0.16% at the time. The moves come as financial markets prepare for a closely watched Bank of England interest rate decision.
Interest Rate Decision Comes Into Focus
The Bank of England’s nine-member Monetary Policy Committee is due to announce its latest interest rate decision on Thursday. A rate increase is widely expected, which could provide further support for sterling if higher UK interest rates attract investors seeking better returns.
Interest rate expectations are one of several factors that can affect currency values, alongside economic growth, inflation and political conditions.
Stronger Pound Could Help Some Households
A stronger pound can make imported goods and services cheaper in sterling terms. It can also increase the purchasing power of British consumers travelling abroad or buying products priced in foreign currencies.
The effect is not uniform across the economy. Businesses that rely heavily on exports can face different conditions when sterling becomes more valuable against other currencies. A stronger pound can also help reduce some imported inflationary pressure by lowering the sterling cost of goods purchased from overseas.
UK Economy Has Outperformed Forecasts
The UK economy has recorded stronger growth than expected so far this year. Economist Jim O’Neill, a former Treasury minister, said to BBC he was not surprised by the pound’s recent performance.
He pointed to improving momentum in the UK and said some investors had previously underestimated the country’s economic prospects. Political stability and closer relations with the European Union have also been cited by traders as factors behind the improved view of sterling.
Pound Still Faces Economic Pressures
The recent rise in sterling comes against a backdrop of continued pressure on UK households. Higher energy and fuel prices have started to weigh on consumer confidence, while the economic outlook remains closely tied to inflation and interest rates.
The pound’s current level therefore reflects a combination of stronger economic data, interest rate expectations and changing investor sentiment. The Bank of England’s upcoming decision will provide another indication of how policymakers view the UK’s inflation and growth outlook.
