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

The pound reached as high as $1.3337 in Asian trading on Thursday, its strongest since Oct. 13, as the dollar extended falls after a dovish set of minutes from the US Federal Reserve handed the greenback its worst day since June.

It eased back to trade at $1.3312 by 1230 GMT, down 0.1 percent on the day but half a percent up compared with before the budget statement.

"The OBR's position on the weakness of productivity and the dismal economic outlook isn't exactly new news - we knew all of that before," said Societe Generale macro strategist Kit Juckes.

"The chance of a rate hike in August next year is just above 50 percent - that's the same as two days ago. So there hasn't been any real kind of a change in how the market's looking at what's going to happen with monetary policy or where the economy is going," he added.

Against a stronger euro, sterling was down a third of a percent at 89.04 pence.

Some analysts said the OBR's 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 showed little reaction to data released on Thursday 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.

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.