The pound today hit its highest level against the euro this year, riding a spate of optimism on the UK economy.

A pound was worth €1.174 (or 85.17p per euro) on the money markets this morning - its best standing since last December - after an economic think-tank yesterday declared the UK economy all but out of recession.

Forecasting group, the National Institute of Economic and Social Research said yesterday that gross domestic product expanded in both April and May.

Another month of growth in June will see the UK become the first world economy to emerge from recession.

The NIESR report came hot on the heels of the latest in a series of positive economic data: UK manufacturing output rose 0.2% between March and April, official figures showed yesterday. Recent reports on the services sector and house prices are pointing to firmer growth.

Neil Jones, head of European hedge fund sales at Mizuho in London, is bullish on the prospects for the UK economy: 'Chances of a recovery are more likely than what people are given credit for. The economic view is changing from very grim to stable, and that is bullish for the pound.'

Sterling was up against the dollar at $1.6383, having climbed as high as $1.6438 in earlier trade. During the political turmoil of the last couple of weeks, and concersn over a challenge to Gordon Brown's leadership, it was back down to $1.5803.

thisismoney.co.uk