LONDON: Sterling rose towards a seven-year high against the euro on Tuesday as stronger-than-expected UK manufacturing data bolstered robust private-sector surveys last week.
Though overall industrial output slowed at the end of last year, manufacturing output rose 0.1 percent in December after growing 0.8 percent on the month in November. A Reuters poll had predicted a 0.1 percent decline in December.
Separate data from the National Institute of Economic and Social Research also showed Britain's economic recovery probably accelerated to 0.7 percent in the three months to January, driven by growth in services.
And earlier on Tuesday, an economic think tank said Britain's economy was on track for its strongest growth in nearly 10 years in 2015.
Sterling edged up 0.1 percent to $1.5230, leaving the currency around 2 percent higher than the 1 1/2-year low it reached in January.
Against the euro, the pound was up 0.2 percent at 74.23 pence, not far from a seven-year high of 74.06 pence struck on Jan. 26.
Attention will now shift to Thursday's Bank of England Inflation Report, which is likely to update growth and inflation prospects. The report may prompt investors to revise their expectations for the timing of the first rate increase since the financial crisis.
"Whether or not (BoE) Governor (Mark) Carney chooses to emphasise the downside risk to inflation or the likelihood that the dip in inflation is temporary during his presentation of the Inflation Report will be crucial for the direction of the pound near-term," said Jane Foley, a currency strategist at Rabobank.
The BoE kept rates unchanged last week. At its meeting in January, two policymakers who had previously voted for a rise dropped their call as inflation tumbled to decade lows and wage growth remained subdued.
"By not commentating on the currency and maintaining a tightening bias, the BoE stands out from the dovish central bank choir so far this year," said Jonathan Webb, head of currency strategy at Jefferies. "This gives some support to the pound for now, though we are wary of political risk posing a drag in the medium term."
Investors are cautious on the pound before a parliamentary election in May that could open the door to a referendum on Britain's leaving the European Union. On Tuesday, implied volatility in sterling against the euro over the next three months rose to a 3 1/2-year high.
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