The pound jumped above $1.30 against the US dollar for the first time since September as British retail sales rebounded during a sunny April.
The volume of sales rose by 2.3 per cent during the month, and four per cent year-on-year, according to the first estimates from the Office for National Statistics (ONS). The ONS said anecdotal evidence suggested "good weather contributed to growth".
A big fall in the previous month had raised fears that the UK economy was about to begin a long anticipated inflation-related slowdown.
However, the rebound was well above the 1.1 per cent expected by economists, prompting a big surge in the pound to highs of $1.3046 against the dollar at the time of writing.
The last time the pound breached the psychological $1.30 mark came at the end of September, before the sterling flash crash in October saw the currency hit a 31-year low.
The underlying trend in retail sales also recovered, with the important three month on three month measure increasing by 0.3 per cent.
In the first quarter of 2017 sales fell at the sharpest quarterly rate for seven years, with ONS statisticians saying price increases appeared to be behind the fall, although the latest release showed the pace of price rises slowed slightly in April to 3.1 per cent, down from 3.3 per cent in March.
While the rebound was welcomed by foreign exchange markets, economists said the prospects for consumer spending remain challenging. Inflation is currently at its highest in almost four years, which is expected to weigh on consumer spending as real wages fall.
Retail sales figures are also notoriously volatile. The ONS said it needs more evidence of expansion before it can say the underlying sales trend has returned to growth.
Chris Williamson, chief business economist at IHS Markit, said: "The better news on the retail sector in April follows upbeat business surveys, which indicated that the pace of economic growth picked up at the start of the second quarter. However, we remain sceptical as to the sustainability of this brighter picture.
“The timing of Easter and better weather clearly looks to have played a role in boosting sales in April, so it’s wise to treat the upturn with some caution."
Nevertheless, timing and weather factors will not dim the relief of retailers who are still contending with the effects of rising inflation, according to Ian Gilmartin, head of retail and wholesale at Barclays bank.
He said: "The scale of the increase has perhaps exceeded even the most optimistic expectations, and this really is a great result for the sector."