Sterling holds near 5-month high as UK growth beats expectations

London: Sterling was little changed on Friday, not far off its highest level in five months, after data showed British growth beat expectations in November but remained subdued over the last three months.

The pound was last flat at $1.2753, close to the $1.2825 hit at the end of December, which was the highest since August. Sterling has risen around 0.3% this year after climbing more than 5% in 2023.

Britain’s economy grew 0.3% month-on-month in November, more than the 0.2% expected by economists, after shrinking 0.3% in October. Yet output shrank 0.2% in the three months to the end of November.

Sterling was also flat against the euro , with the euro zone’s currency trading at 85.95 pence. The euro has slipped 0.8% so far this year against the pound.

The pound has benefited in recent months from UK inflation running hotter than the U.S. and Europe. That’s caused traders to expect fewer rate cuts from the Bank of England than its two major peers, supporting British bond yields and making sterling look relatively more attractive.

Traders currently expect around 125 basis points of interest rate cuts from the BoE next year, according to money market pricing.

“We think the pound will continue to appreciate gradually against the dollar, as it becomes apparent the (BoE) won’t reduce Bank Rate quite as quickly as markets currently anticipate,” Gabriella Dickens, senior UK economist at consultancy Pantheon Macroeconomics, said in a note to clients on Thursday.

“The general election, which will probably be held in the autumn, likely won’t weigh materially on sterling.”

The U.S. dollar index , which tracks the currency against six major peers, was up 0.14% at 102.35 on Friday.