Sterling bounced back against the dollar and the euro on the back of the Bank of England's pessimistic inflation report, dealers said Thursday.
The BoE warned Wednesday that British inflation - which hit 3.0 percent in April - could spike to 3.6 percent this year owing to soaring energy and food prices, the AFP reported.
The BoE also predicted in its latest quarterly report that the economy would slow sharply this year amid the spreading impact of the global credit crunch.
The depressing report led many economists to predict that it will not be able to slash interest rates in the near future.
"The UK inflation figures are looking pretty grim, so it looks like the Bank of England can't cut rates any time soon," said TradIndex trader Mic Mills.
Pound London 1532 GMT London 1119 GMT
Euro 1.2577 up from 1.2547
U.S. dollar 1.9461 up from 1.9436
Japanese yen 203.79 down from 204.05
Swiss franc 2.0525 up from 2.0475