Finance minister Philip Hammond announced during his budget statement on Wednesday that Britain's Office for Budget Responsibility had slashed its growth and productivity forecasts, knocking sterling down towards $1.32 during his speech to parliament.

But the currency recovered as Hammond announced new measures intended to help first-time house buyers, with traders saying they had expected the lower forecasts.

Some analysts said the new projections were seen as deliberately pessimistic.

"The markets recognise that both the OBR and BoE have recently been seen to take a more cautious stance when forecasting growth, so many are looking at these new forecasts as a worst-case scenario that is likely to be bettered," wrote FxPro analysts in a note to clients.

Sterling reached as high as $1.3337 in Asian trading, its strongest since Oct. 13, before easing back to trade at $1.3305 by 1000 GMT, down 0.2 percent on the day but half a percent up compared with before the budget statement.

Part of that strength, however, was down to dollar weakness, driven by a more dovish statement from the US Federal Reserve on Wednesday than had been expected. Against the euro, the pound was trading 0.3 percent lower at 89.00 pence.

Sterling also drew some marginal extra support on Thursday from data showing that the economy grew at 0.4 percent in the third quarter of this year, as expected, with households increasing the pace of their spending.

"With the impending cloud of Brexit uncertainty shadowing over proceedings, as long as expectations are met in the short-term pessimists will be held at bay," said Alex Lydall, head of dealing at brokerage Foenix Partners.

"The notion of revising down growth forecasts in budget statements is not alien to us, and in the current environment analysts treat the notion as familiar ground."

The Brexit talks remain at the forefront of most investors' minds.

Prime Minister Theresa May will visit Brussels on Friday, where European Union negotiators will be listening intently for signs that Britain is preparing to risk a domestic backlash by raising its divorce bill offer to secure a Brexit deal in December.

Hopes have been raised by reports in British media over the past week that May has secured backing from pro-Brexit hardliners in her cabinet to increase the offer.