The pound surged to a three-week high against the dollar on Thursday (3 November), after the Bank of England (BoE) revised its growth forecast for 2017 and the High Court ruled MPs will have to vote on whether to trigger Article 50.

Sterling hit fresh highs of $1.2492, the highest level in three weeks, and €1.1285 soon after the BoE's policy announcement before retreating to $1.2447 and €1.1236 by mid-afternoon.

However, that meant the pound was still 1.20% and 1.42% higher against the dollar and the euro respectively.

Along with leaving interest rates unchanged, the BoE raised its growth forecasts for 2017 to 1.4%, compared with previously released guidance suggesting the economy would expand by 0.8% next year.

Mark Carney
Bank of England governor Mark Carney leaves Number 10 Downing Street Stefan Wermuth/ Reuters

However, it cut its growth forecast for 2018 down to 1.5% from 1.8% and said the EU referendum would weigh on medium-term growth. It also warned that inflation is expected to hit 2.7% next year, way above its intended 2% target.

"We expect the market to rapidly price out the prospect of the BoE cutting rates in the coming months, and even years," said Kathleen Brooks, research director, at City Index.

"We could see the pound break back above $1.25 on the back of this [today's rally] and open the way to a higher range for pound/dollar between $1.25 and $1.30."

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The facts have changed, and so the Bank of England has changed its mind about the prospects for UK economic growth.

"It's no surprise to find economic forecasts wobbling all over the place right now, they are always prone to error and particularly fallible at the moment due to the enormity of the Brexit process, and the big currency movements we have witnessed since the referendum."

Earlier in the day the pound had received a much-needed shot in the arm, after the High Court ruled today that MPs must have a vote on triggering Article 50, the official mechanism to split from the EU.

However, Spreadex analyst Connor Campbell warned the excitement over the ruling was somewhat premature.

"While it does make it more difficult for May and her pro-Brexit government to indiscriminately barrel ahead with Britain's divorce from the EU, the ruling is set to be challenged in the Supreme Court this time next month," he said.

"Even if it does go to a parliamentary vote, it is unlikely MPs will want to be seen as going against the referendum result by blocking the enacting of Article 50."

However, he conceded that the pound was "due some good news", and it has certainly taken advantage of that brief glimmer of hope.

Elsewhere, the euro was 0.10% lower against the dollar, trading at $1.1083, although the greenback was on the back foot against its other major rivals after the Federal Reserve kept interest rates unchanged late on Wednesday.

The US currency, which was unchanged against the Canadian dollar, fell 0.21% against the yen to 103.08 and was 0.31% lower against its Australian counterpart, trading at AUD$1.3028.