LONDON (Reuters) - Sterling added more than a cent to hit two-month highs on Thursday after forecast-beating UK retail sales data and amid growing optimism that Britain and the European Union are making progress at a summit of EU leaders towards a Brexit deal.
British retail sales jumped 3.3 percent in August compared with the same month a year earlier, better than all forecasts in a Reuters poll of economists, as shoppers maintained their strong summer spending spree.
Sales rose by 0.3 percent in August from July, the Office for National Statistics said, defying a median forecast for a fall of 0.2 percent. The numbers follow other data showing the UK economy performed relatively well in recent months and that UK consumer prices in August rose at their fastest pace in six months.
Versus a dollar sliding against most currencies, the pound hit $1.3295
Against the euro, the British currency rallied 0.3 percent to hit 88.475, its best level since July 17.
Investors have pushed the pound to its highest since July this week as they grow confident that a Brexit trade deal - helping Britain avoid a disorderly exit from the EU - can be clinched in the coming months.
"Headlines around Brexit clearly look to be a bit more constructive and the retail data was phenomenal so there's no denying that the consumer is just propping things up," said Tim Graf, State Street Global Markets' EMEA Head of Macro Strategy.
Graf said people were coming around to the idea on Brexit talks "that even if things don't reach agreement in the time prescribed they are showing a willingness to fudge things a bit, to move previous red lines a little bit."
Amid another blizzard of Brexit headlines on Thursday, British Prime Minister Theresa May said she believed there was a growing desire to sit down and reach a deal. But she also said the UK was preparing to leave the EU without an agreement if there were no proposal that it deemed acceptable.
Cabinet Office minister David Lidington said Britain was more than 85 percent of the way to agreeing a deal.
There remains a way to go, not least in agreeing on how to ensure that the border between Northern Ireland, part of the UK, and EU member Ireland remains open after Brexit.
May on Wednesday urged her EU counterparts to drop what she said were unacceptable Brexit demands that she said could rip the UK apart.
"The Irish border issue remains the chief stumbling block to a deal, while the EU prepares for a November summit where it hopes an agreement will be sealed. EUR/GBP is for now clinging onto the uptrend support line drawn from the April low," strategists at Societe Generale wrote.
(Reporting by Tommy Wilkes and Sujata Rao; Editing by Angus MacSwan and Gareth Jones)