Traders back sterling as UK economy strengthens

Currency traders backed the pound today as the UK’s economy took the shock of Brexit largely in its stride between July and September.

The surprise 0.5% growth — albeit slower than the 0.7% seen between April and June — pushed the pound up as much as half a cent against the dollar to $1.2272 at one stage, although it remains more than 15% below pre-referendum levels.

The strength of the data — driven by the UK’s powerhouse services industry — virtually rules out the chances of a further rate cut from the Bank of England next week.

Jake Trask, currency analyst at broker UKForex, said the “doomsday scenarios predicted about the impact of a Brexit vote on the UK economy seem wide of the mark”, although Richard de Meo, managing director of foreign exchange boutique Foenix Partners cautioned that the political debate over “hard” or “soft” Brexit was likely to have more impact on the currency.

“Downing Street, not data, is the pound’s only driver,” he added.

Other experts also warned that the going could get tougher for an economy being propelled solely by services.

Dennis de Jong, managing director of broker UFX.com, said: “Rising inflation and a weak pound is likely to hit consumer spending and it won’t take much for the dark clouds of recession to return as a very real threat.”