The pound has climbed above $1.30 against the US dollar for the first time since before the election as figures showing a pick-up in consumer borrowing buoyed expectations of an interest rate rise.
Sterling was nearly a cent higher following the data from the Bank of England which also showed a higher than expected number of mortgage approvals in May. It has not been above $1.30 since 25 May.
The figures helped to allay fears about the impact of Brexit uncertainty and a squeeze on household finances in holding back consumer spending and dragging on the economy.
They followed comments from Bank of England governor Mark Carney on Wednesday that some removal of its monetary stimulus – code for low interest rate and money-printing quantitative easing – was “likely to become necessary” in certain circumstances.
Mr Carney said it would depend on “how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations”.
Image: Mark Carney’s comments on Wednesday added to speculation about a rate rise
The latest Bank of England data showed consumer borrowing rose by 10.2% on an annualised basis in the three months to May, up from 9.7% in April and the joint highest reading since November.
It also showed the numbers of mortgages approved for house purchases rose to 65,202 in May, little changed from April but beating economists’ expectations.
Other recent economic data has been mixed with figures from the British Bankers’ Association earlier this week painting a more subdued picture of consumer and home loans.
But the latest house price index from Nationwide pointed to a bounce-back for the property market, with prices rising in June after three months of falls.
Ruth Gregory, UK economist at Capital Economics, said: “May’s UK money and credit figures provide another reason to think that the consumer slowdown shouldn’t be too severe.
“This suggests that households remain confident enough to increase borrowing to help smooth consumption, in the face of the squeeze on their real incomes.
“Of course, this will do nothing to allay policymakers’ concerns about the recent rapid increase in unsecured lending.”
Image: Consumer credit growth has gathered pace
The Bank of England noted the rapid increase in consumer credit as it published its Financial Stability Report earlier this week, which saw it order banks to store up more than £11bn in reserves to cushion against future shocks.
That was a reversal of a decision shortly after last year’s Brexit vote to ease rules on these capital “buffers”, to prevent lending to households and businesses from seizing up.
The rules are now being reinstated with the economy returning to a more normal state.
Another Bank decision designed to cushion the UK against a downturn after the Brexit vote last summer was the cut in interest rates to 0.25%.
With economic growth slowing at the start of this year, plus inflation rising while wages growth stutters, there had appeared to be little chance of a hike in rates any time soon.
But a recent split vote by the Bank on whether to keep rates on hold, coupled with remarks from its chief economist Andy Haldane who broke ranks to declare he could support a rise in interest rates later this year, have begun to fuel speculation of an increase.
That has lifted the pound, though it remains about 13% lower than before the EU referendum result last June.