LONDON, Oct 18 Reuters The pound rallied by as much as 0.5 on Friday, after data showed UK consumer spending was surprisingly strong last month, offering some reassurance about the strength of the economy, although the currency was still set for its third weekly drop.

British retail sales unexpectedly rose in September, according to official data which contradicted signs that consumers were downbeat about possible tax rises ahead of the new government39;s first budget later this month.

Sales volumes increased by 0.3 in September, beating economists39; expectations for a monthly 0.3 fall.

Coming out of a period where elevated inflation led consumers to spend more but receive less, we are thankfully back on a path of seeing higher spending met with higher volumes of goods received, Scope Markets strategist Joshua Mahony said.

With markets still making up their mind over the likeliness of a rate cut at both November and December BoE meetings, improved spending metrics could see dovish expectations fade somewhat, he said.

The data showed that, combined with stronger gains in July and August, sales rose by 1.9 rise in the third quarter, the joint largest increase since mid2021.

Sterling , which rose to a session high of 1.307 earlier in the day, was last up 0.2 at 1.3037. Against the euro , the pound was up 0.1 at 86.615 pence.

It was still heading for a third weekly drop against the dollar, which has rallied over the last few weeks, as investors have grown…