British retail sales were flat in November from the previous month and showed and an annual rise of just 0.9 percent, below economists' forecasts. "Today's sales numbers could confirm a contraction in (British) GDP for the fourth quarter," said Nawaz Ali, market analyst at Western Union.
He added that uncertainty over the US budget was likely to undermine the dollar in the near term and would give a boost to sterling towards the $1.63 mark. The pound was firmer against the US dollar. Traders said Asian sovereign investors were buying the pound, helping it rise against the dollar.
Sterling was last trading at $1.6280, not far from a three-month high of $1.6307 hit on Wednesday. A move above the September high of $1.6310 would take the pound to its highest since August 2011. The British currency's latest rise against the dollar reflects a broad weakening of the US currency since the Federal Reserve opted to extend its monetary easing programme earlier this month.
However, gains in the pound, especially against the dollar, could be fragile given strong expectations that the Bank of England may also have to ease monetary policy in early 2013, analysts said. The UK economy is likely to remain stagnant in the near term, minutes from the Bank of England's Monetary Policy Committee forecast on Wednesday, with inflation probably continuing to exceed 2 percent in the next year or so.