LONDON: Sterling rose to a one-month high versus the euro and a one-week peak against the dollar on Wednesday after data showed that UK industrial output growth outpaced expectations in September.
Output in the industrial sector - which makes up about one sixth of Britain's economy - climbed 0.9 percent, bouncing from a fall in August and beating the Reuters' forecast of 0.5 percent.
This lent support to the view that a sustained economic recovery in the UK was likely taking hold and helped sterling extend gains after Tuesday's UK PMI services data which showed the sector had expanded at its fastest pace in 16 years.
The euro was last flat against sterling at 83.96 pence, having hit 83.79 pence which was its lowest since Oct. 3. Support was cited at the October low of around 83.32 pence.
The pound was up 0.4 percent at $1.6101, having hit a one-week high of $1.6118.
"Data at the moment at least for the final quarter appears to be holding up relatively well and that seems to be offering decent support for the pound," said Simon Smith, chief economist at FxPro.
He, however, added that sterling could likely struggle to climb much higher against the dollar from current levels.
Analysts said better-than-expected UK economic data could see the Bank of England bring forward its forecast next week for when unemployment will hit the 7 percent level at which it will consider raising rates. Currently it sees this happen in 2016.
"This morning's (industrial production) print underpins investor expectations that a rate hike could come as soon as early 2015 from the BoE," said Alex Edwards, head of the corporate desk at UKForex.
The BoE meets this Thursday, but is not expected to make any changes to policy. A greater focus will lie on next week's Inflation Report where the bank could revise up its growth outlook.
In contrast, markets are pricing in the a chance of more stimulus this week and a rate cut in the next few months by the European Central Bank.
The euro tumbled from levels above 85.50 pence last week when weak euro zone inflation data sparked speculation the ECB may cut interest rates in order to stave off deflation risks.
"The ECB is under pressure to ease policy, not necessarily by cutting rates but perhaps by adding more liquidity or other measures, while the BoE has continued to see firmer-than- expected data undermining the view that rates could be steady for a further two years," FxPro's Smith said.
"Policy action, or hints thereof, from the ECB this week could well see this trend enhanced, with the early October lows of (around) 83.327 pence in focus."
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