Sterling was sharply higher after a set of economic data indicated that the economic recovery in the UK was continuing.
The Standard & Poor's ratings agency said late on Monday that it would not be changing its AAA rating on UK debt, but maintained its negative outlook for the country. It said that the spending cuts outlined by the new government were an 'impressive start' but added that more needed to be done to bring the UK debt burden down. Data from the Consumer Price Index (CPI) showed that the overall UK inflation rate was 3.2% in June, down slightly from May’s 3.4%, and above the Bank of England's 2% target for the seventh month in succession. Price increases of 0.1% were in line with expectations, but the core inflation rate (which excludes products that have temporary price shocks) rose from 2.1% in May to 3.1% in June, prompting traders to buy the pound in expectation that the interest rate may be raised sooner than expected. There was also some good news from the British Retail Consortium, which reported a 1.2% rise in like-for-like UK retail sales in June, helped by the sunny weather and summer discounts, suggesting that the outlook for consumer spending was not as bleak as previously thought.