The pound strengthened the most in more than three months against the euro after data showed Britain’s economy expanded at a faster pace than analysts forecast last quarter, pulling the nation out of a recession.
Sterling rose for the first time in five weeks against the dollar as the strongest growth in five years prompted economists at Barclays Plc and Investec Securities to abandon forecasts for the Bank of England to boost its bond-buying program next month. Gilts were little changed after Bank of England Governor Mervyn King said the recovery is proceeding at a “slow and uncertain” pace and a “zig-zag” pattern will probably persist.
“The spectacular bounce in U.K. gross domestic product helped sterling and points at improving momentum in the economy,” said Valentin Marinov, head of European Group-of-10 foreign-exchange strategy at Citigroup Inc. in London. “That greatly diminishes the chance of more bond-buying from the Bank of England in November.”
The pound rose 1.2 percent over the week to 80.37 pence per euro at 5:03 p.m. in London yesterday. That’s the biggest five-day increase since the period ending July 6. Sterling climbed 0.6 percent to $1.6095.
The pound will probably strengthen toward 79 pence per euro in the next three weeks, Marinov predicted.
U.K. GDP expanded 1 percent in the three months through September from the previous quarter, the fastest growth since 2007, Office for National Statistics data showed on Oct. 25. That exceeded the highest estimate, for a 0.8 percent increase, in a Bloomberg News survey of economists.
Sterling may weaken on Nov. 1 when analysts forecast a survey of purchasing managers will show U.K. manufacturing shrank for a sixth month in October. The Bank of England’s Monetary Policy Committee will decide on Nov. 8 whether to extend its asset-purchase program beyond 375 billion pounds.
The pound has advanced 0.2 percent in the past three months according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro gained 3.1 percent and the dollar dropped 2.6 percent.
The yield on the 10-year gilt fell one basis point, or 0.01 percentage point, in the past week to 1.87 percent. The 1.75 percent security maturing in September 2022 rose 0.11, or 1.10 pounds per 1,000-pound face amount, to 98.945.
Gilts returned 1.9 percent this year through Oct. 25, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 2.5 percent and Treasuries earned 1.4 percent.