LONDON: Sterling touched its highest level in three weeks on Thursday, with the UK government’s latest measures to help alleviate a cost of living crisis seen supporting the economy in the short term.

Sterling has been hit hard in recent weeks by growing fears that Britain’s economy is heading towards recession and analysts said signs of government support could help lift sentiment toward the currency, which has rebounded this week.

They noted it should also ease pressure on the Bank of England (BoE), which is caught between raising rates to contain inflation and being mindful of a deteriorating growth outlook.

Britain announced a 25% windfall tax on oil and gas producers’ profits on Thursday, alongside a package of support for households struggling to meet rising energy bills.

The announcement marks a change of heart for Prime Minister Boris Johnson’s government which had previously resisted windfall taxes and called them a deterrent to investment.

The pound was last up 0.12% at $1.2599, having briefly touched a three-week peak at $1.2620. It was a touch softer versus the euro at 85.05 pence. “My take is that this (package of measures) is a good thing for growth in the short-term,” said Henry Occleston, European macro strategist at Macro Hive in London.