The Pound gained ground against the US Dollar on Thursday after stronger-than-expected economic data from the UK boosted confidence in the Bank of England holding off on aggressive interest rate cuts.

Sterling edged up 0.2% to $1.327, benefiting from a weaker Dollar as enthusiasm over the recent US-China trade deal began to wane.

According to official data, the UK economy grew by 0.7% in the first quarter of 2025, well above the 0.1% growth recorded in the final quarter of 2024 and surpassing both the Bank of England’s and economists’ 0.6% forecasts, Reuters reports.

In March, the economy grew unexpectedly by 0.2% compared to February, defying economists’ predictions of no growth.

However, challenges remain on the horizon, as the global effects of US President Donald Trump's trade war and warnings from British businesses about the impact of recent increases in UK employment taxes could dampen future economic prospects.

After the data release, Finance Minister Rachel Reeves acknowledged the economic challenges ahead but highlighted the importance of the government’s newly secured trade deals with the United States and India.

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

Against the Euro, the Pound remained steady at 84.27 pence, following a six-week high reached earlier this week.

Since the Bank of England cut interest rates by a quarter point last week, traders have reduced their expectations for further rate cuts in 2025. Money markets now anticipate 44 basis points of easing by December, down from 70 basis points predicted just a week ago.

Hawkish remarks from Bank of England policymakers Catherine Mann and Huw Pill this week also contributed to the reduced expectations for rate cuts.

Bank of England policymaker Swati Dhingra is scheduled to give a speech in Brussels on Thursday. Since joining the Monetary Policy Committee in August 2022, Dhingra has been the most frequent voter in favour of easing monetary policy.

Furthermore, at next week’s UK-EU summit, British Prime Minister Keir Starmer aims to secure a new defence pact with the European Union and strengthen post-Brexit trade relations.