Sterling rises after upbeat UK GDP data

By Medha Singh

(Reuters) -The pound climbed against the U.S. dollar on Thursday after data showed the British economy grew faster than expected, further making the case for fewer interest rate cuts from the Bank of England.

Sterling rose 0.2% to $1.327 against a sluggish dollar as excitement faded over the U.S.-China trade deal announced earlier this week.

Official figures showed the British economy expanded 0.7% between January and March, up sharply from 0.1% growth in the last three months of 2024, and beating the 0.6% growth forecast by the BoE and a Reuters poll of economists.

In March alone, the economy unexpectedly expanded by 0.2% from February, compared with the flat reading expected by economists.

However, the global impact of U.S. President Donald Trump's trade war and British businesses warning of a hit from an increase in UK employment taxes that came into effect last month could weigh on the outlook.

Speaking after the data, finance minister Rachel Reeves said there were clearly economic headwinds approaching, while emphasising the significance of the government's recently-announced trade agreements with the United States and India.

"While a UK-U.S. trade deal will see the U.S. lower tariffs on some goods, the UK, as a highly open economy, will still suffer from any global slowdown," said George Brown, senior economist at Schroders.

Against the euro, sterling was flat at 84.27 pence after hitting a six-week high earlier this week.

After the BoE lowered rates by a quarter point last week, traders have scaled back 2025 rate cut bets. Money markets have priced in 44 basis points of easing by the BoE by December from 70 bps of easing expected a week ago.

A hawkish tilt in comments from BoE policymakers Catherine Mann and Huw Pill this week also influenced those bets.

BoE policymaker Swati Dhingra is expected to deliver a speech in Brussels at 1400 GMT. Dhingra has been the BoE's Monetary Policy Committee member who has voted most often for looser monetary policy since she joined in August 2022.

Focus will also be on a spate of U.S. data at 1230 GMT including retail sales that could offer clues on U.S. Federal Reserve's rate trajectory.

At a UK-EU summit next week, British Prime Minister Keir Starmer is hoping to clinch a new defence agreement with the bloc and improve post-Brexit trade ties.

(Reporting by Medha Singh in Bengaluru. Editing by Amanda Cooper and Mark Potter)