The value of sterling fell significantly after the Brexit referendum in June 2016, and reached further lows during the Brexit process, the Covid pandemic and the 2022 mini-Budget.

Some traders said the UK was being seen in a different light given relative political stability, solid growth and the rapprochement with the European Union.

Sterling has responded strongly to Brexit developments and political uncertainty in recent years.

Jim O’Neill, an economist and former Treasury minister, said: “I’m not surprised. People were, and to a lesser extent, are, underestimating the improving momentum in the UK.”

A stronger pound can help rein in inflation, and increase buying power for consumers on imports and on holidays.

UK growth so far this year has outperformed all forecasts, but there are signs that higher energy and fuel prices have now hit consumer confidence.

The Bank’s nine-member Monetary Policy Committee faces an important decision on interest rates on Thursday, with the first rise in three years widely expected.

The pound was up 0.13% against the dollar at $1.3495 and 0.16% lower against the euro at €1.1979 as of 04:15 GMT on Thursday.