The British currency extended gains to rise half a percent on the day at $1.3419 compared to $1.3385 earlier as retail sales volumes rose by 1.6 percent from March, well above the median forecast for a monthly 0.7 percent increase in a Reuters poll of economists.

But it subsequently trimmed early gains to stand 0.3 percent up on the day at $1.3393.

"I would expect limited gains for sterling however as the longer term remains subdued," said Neil Jones, Mizuho head of FX hedge fund sales based in London.

Sterling's gains were also magnified by the dollar's weakness. It was down half a percent against a basket of its rivals after the release of Fed minutes overnight which was perceived as dovish.

However, on a trade-weighted basis, sterling was trading near its lowest levels in two weeks at 78.67.

Britain will end its implementation period with the European Union after Brexit in December 2020, a government source said on Thursday, denying a media report that Prime Minister Theresa May was seeking a new transition until 2023.

The Bank of England is waiting for signs of recovery before it raises interest rates again and sterling hit its lowest levels of 2018 on Wednesday after inflation unexpectedly fell, raising fresh doubts about the timing of the BoE's next rate hike.

Market implied expectations for the next rate hike remained unchanged with bond markets pricing in a move by the end of the year with a 33 percent probability of a rate hike by August.

Government bond futures extended losses by 15 ticks to hit 122.05, down 25 ticks on the day.

Britain's FTSE 100 fell, and was down 0.1 percent after the better retail sales data boosted sterling, a negative for the index whose constituents mainly earn in foreign currencies.