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 1.2% against the dollar at $1.2068, its biggest jump against the greenback since Jan. 6.
The dollar weakened broadly after Friday's U.S. labour market, which showed robust jobs growth but a rise in the unemployment rate and signs of cooling wage inflation.
The United States added 311,000 payrolls in February and the unemployment rate rose to 3.6%. A survey of economists polled by Reuters expected the United States to have added 205,000 jobs last month and the unemployment rate to hold steady at 3.4%. Average hourly earnings rose 0.2% last month after gaining 0.3% in January, below expectations of 0.3%.
"The initial market reaction appears to have been to focus on weaker than expected average hourly earnings growth," said CJ Cowan, portfolio manager at Quilter Investors, who said next week's consumer prices data should provide more of a steer on the Federal Reserve's next step.
Markets trimmed bets that the U.S. central bank will raise interest rates as sharply or as high as earlier thought following Friday's jobs data.
Markets were also busy elsewhere, as European banking stocks followed their U.S. counterparts lower after tech-lender SVB Financial Group's efforts to raise money failed, with the troubled bank in talks to sell itself.
The rout in SVB's stock raised questions about hidden risks
in the sector and its vulnerability to the rising cost of money. "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.
The euro was down 0.5% against the pound at
88.24 pence, falling to its lowest level since March 1.
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Graphic: World FX rates in 2023 Graphic: Trade-weighted sterling since Brexit vote ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Samuel Indyk; Editing by Nick Macfie and Angus
MacSwan)
