Sterling hit a five-week high against the euro on Thursday, strengthening after comments from the Bank of England and data showing a rise in house prices cemented expectations that interest rates would remain unchanged. BoE Monetary Policy Committee member Stephen Nickell said in a paper released on Thursday that British goods prices may soon start rising, ending a long period of deflation, though overall inflation remains on course to hit its target.
House prices increased a seasonally adjusted 0.4 percent in January, data from the Nation-wide building society showed, but the annual rate of increase was the lowest in three years.
"There will probably be no change in the outlook for interest rates. The housing market is not collapsing like people thought it would," said Matthew van Dyckhoff, foreign exchange sales manager at Brown Brothers Harriman.
By 1530 GMT, sterling hit its lowest level since December 21 at 69.10 pence and was up around half a percent on the day. It was little changed against the dollar at $1.8850, off a two week high.
The pound was left unscathed by a survey from the Confederation of British Industry which showed that UK factory confidence was at its lowest level in nearly two years.
"The CBI report was not great data for the pound," said Paul Mackel, foreign exchange strategist at ABN Amro.
"But sterling is probably taking more direction from what Nickell said this morning. He said inflation should be in line in two years' time, so it waters down the argument of cutting rates," he added.
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