The pound held firm in volatile trade, having surged to a one-week high after reports of a possible U-turn by the UK government on its fiscal plans, before strong US inflation data tempered some of those gains.

The pound surged as much as 1.8% against the dollar after Sky News reported the British government is discussing making changes to the fiscal plan announced last month.

The reports also pushed up UK equities and bonds.

A reading of US consumer inflation showed price pressures accelerated more quickly than expected last month, reinforcing expectations for more chunky rate rises by the Federal Reserve, which boosted the dollar and took some of the wind out of the pound's sails.

The pound was up 0.8% at $1.1191 this afternoon.

The market is looking ahead to the end of the Bank of England's emergency debt support programme on Friday.

Bank of England Governor Andrew Bailey has been unequivocal that the central bank will end its emergency bond-buying tomorrow.

But with Britain's government borrowing costs jumping to 20-year highs, market players had been questioning whether the scheme will have to be extended to mitigate the turbulence.

Adam Cole, head of FX strategy at RBC Capital Markets, said it looked certain that the Bank of England will stick to its deadline today, describing the pound as in a holding pattern until then.

"I don't think anyone has any idea of how the market is going to react, so we will wait and see how gilts open on Monday and take our cues from that," said Cole.

Britain's 20-year gilt yield fell today after hitting its highest since 2008 yesterday.

"The risk of a cliff-edge in the gilt market remains for Monday and in this environment, we doubt many investors would want to go near sterling," said ING analyst Chris Turner in a note.

A survey today showed sentiment in the UK financial sector falling at fastest pace since 2019 in the third quarter of this year.

Investors are fully pricing in a full-point rate rise from the Bank of England at its November meeting, following six previous hikes as the central bank rushes to contain soaring inflation without exacerbating an economic slowdown.

As the cost of UK mortgages surges, British house prices rose last month at their slowest pace since early in the coronavirus crisis, a survey showed today.