LONDON: Sterling edged higher on Wednesday as traders assessed that data showing the British economy grew slightly below consensus in August was not enough to dent expectations the Bank of England will increase interest rates.
Britain's economy grew 0.4% in August, leaving it just 0.8% smaller than it was in February 2020, the Office for National Statistics said. Economists polled by Reuters had forecast monthly gross domestic product growth of 0.5% for August.
Economic data this week, including UK jobs figures for September that came in largely in line with forecasts, "gave no reasons for markets to scale back their aggressive pricing for Bank of England tightening", ING told clients in a note.
Sterling briefly fell below $1.36 against the dollar, after data showed U.S. consumer prices increased solidly in September and are poised to rise further amid a surge in the costs of energy products, casting doubts on the Federal Reserve's view that high inflation was transitory.
But at 1340 GMT, the pound was up 0.4% at $1.3641, not far from a two-week high touched on Monday.
The BoE, facing a jump in inflation, looks set to be the first major central bank to raise interest rates since the beginning of the pandemic. Investors are betting on a rise to 0.15% by December.
Over the weekend, BoE governor Andrew Bailey stressed the need to prevent inflation from becoming permanently embedded, and fellow policymaker Michael Saunders said households must brace for "significantly earlier" interest rate rises.
Sterling edges up as BoE tells people to prepare for earlier interest hikes
But some analysts have pointed out that sterling had failed to react to renewed post-Brexit disputes over the Northern Irish protocol, which governs trade in the province.
"I think Brexit and trade should be a bigger issue for GBP than it is," said Marshall Gittler, head of investment research at BDSwiss Holding.
Additionally, French government spokesman Gabriel Attal said France was working on retaliatory measures in its post-Brexit fishing dispute with Britain.
Against the euro, sterling edged 0.1% higher to 84.78 pence, not far from a two-month high touched this week.