Pound sterling rallies ahead of Bank of England rate decision and inflation report

The currency remains around 15 per cent lower against the dollar

The pound has hit its highest level of 2017 against the US dollar, as traders get ready for the Bank of England’s new economic forecasts (Getty)

The pound extended gains against the dollar on Thursday, having already rallied hard after MPs late Wednesday voted in favour of giving the Prime Minister power to trigger Article 50.

In morning trading in London, sterling rose above the $1.27 mark to a more than six-week high and climbed against the euro too, before retreating somewhat.

“The vote effectively confirms that the UK will leave the EU,” currency strategists at UniCredit wrote in a note to clients. Increased certainty around what Brexit might look like has in recent weeks tended to support the pound.

Sterling last week chalked up its best weekly performance since November, bolstered by a combination of greater certainty on EU divorce proceedings and a batch of robust economic data.

Since June, however, the currency remains around 15 per cent lower against the dollar and some strategists maintain that it could creep lower again before seeing any kind of sustainable recovery.

MPs will spend Thursday poring over a Government White Paper setting out its Brexit strategy as the next battlegrounds in the debate over quitting the EU begin to emerge.

Elsewhere on Thursday the Bank of England is due to announce its latest policy decision and unveil fresh inflation forecasts for the UK.

Economists broadly expect no change on interest rates.

Kallum Pickering, an economist at Berenberg, however, says that “the UK still faces some serious downside risks”.

“The economy has avoided the potholes so far. But if Brexit uncertainty begins to act as a bigger drag on spending and investment, or if the housing market suddenly soured, or if the rise in inflation was more serious than currently anticipated, the economy’s current strong momentum could turn on a sixpence,” he said.