The pound rose more than half a cent against the dollar after the Bank of England hinted that a further rate rise might come sooner than expected.
The monetary policy committee (MPC) kept interest rates unchanged at 0.5% but took a hawkish stand, saying rates would have to be reviewed “somewhat earlier than anticipated”.
The MPC still stressed, however, that any future interest rate rises are expected to be "gradual and to a limited extent”.
The comment came on the back of a higher growth forecast, with the Bank expecting an average annual expansion of 1.75% over the next three years.
Sterling rose from $1.3877 at the start of trading to $1.3946 by close on Thursday, having briefly passed the $1.40 mark.
“The improved growth outlook supports our view that Sterling will continue to strengthen in the coming months,” said Miles Eakers, chief market analyst at Centtrip.
Jordan Hiscott, chief trader at ayondo markets, said the job “had just got a little more difficult” for the MPC.