The Office for National Statistics (ONS) said Britain's economy expanded 0.3% month-on-month, after a drop of 0.5% in December. A Reuters poll of economists had pointed to growth of 0.1%.
"At this stage, we are far from convinced that a technical recession in 2023 is the foregone conclusion that many in the market have made out," said Matthew Ryan, head of market strategy at Ebury.
"We think that the resilience of the UK economy will provide decent support for the pound in the coming months." The pound was last up 0.54% against the dollar at $1.1991.
The euro was down as much as 0.5% against the pound to 88.25 pence, falling to its lowest level of the week.
Markets were also busy elsewhere, as European banking stocks followed their U.S. counterparts lower after tech-lender SVB Financial Group announced plans to raise funds which saw its shares plunge as much as 60%.
SVB raised questions over the unrealised losses on bond portfolios among U.S. banks, and what that could mean for capital requirements, analysts said. "If the banking stress story has a little further to run we can expect a little sterling under-performance, given the relatively large size of financial services in the UK economy," said Chris Turner, regional head of research for UK and Central and Eastern Europe at ING. Focus was also turning to Friday's pivotal nonfarm payrolls report, one of the final major data points before the Federal Reserve's March policy meeting.
According to a Reuters survey of economists, nonfarm payrolls likely increased by 205,000 last month after increasing by 517,000 in January, a figure which could see the Fed raise rates higher and keep them there for longer than previously expected.
"Above-forecast data could cement a 50-basis-point hike and support further USD strength," said George Vessey, FX and macro strategist at Convera.
"If all key indicators point to a robust U.S. labour market, the likelihood of a larger Fed rate hike this month should increase, possibly reducing the suspense in the U.S. inflation reports due next week." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic: World FX rates in 2023 Graphic: Trade-weighted sterling since Brexit vote ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Samuel Indyk; Editing by Nick Macfie)
