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Stronger-than-expected retail sales helped send the pound through $1.32 as shoppers treated themselves to new furniture and lighting.

The Office for National Statistics said sales rose 0.3% between July and August against forecasts for a 0.2% drop.

It said growth was strong at both non-food and household goods shops.

However, economists warned that spending may slow on higher inflation and caution as the UK enters the final six months before Brexit.

Overall, retail sales rose by 3.3% in the year to August according to the ONS, ahead of an expected 2.3% increase.

Shortly before 17:00 sterling was up 0.7% against the dollar at $1.3238.

From July to August household goods' sales jumped 4.5% - the biggest monthly rise since May 2016 - which Samuel Tombs from Pantheon Macroeconomics said "was powered by a huge 7.8% month-to-month jump in furniture and lighting sales".

However, he cautioned: "The subdued level of housing market activity suggests that sales in this sector will fall back in September."

Economists also warned that the surprise increase in inflation, which rose to a six month high of 2.7% in August, may dampen spending.

The chief executive of Retail Economics, Richard Lim, said: "Yesterday's surprise rise in inflation means real earnings remain under pressure.

"Against a backdrop of heightened political and Brexit uncertainly, many households will be more cautious with their spending."

Despite overall growth in retail, month-on-month clothing sales fell by 1.9%.

Ian Gilmartin, from Barclays Corporate Banking, said: "Clothing dipped in August as most shoppers had already finalised their summer wardrobe and the continued good weather resulted in little appetite for early autumn lines.

"With cooler temperatures on the way, fashion retailers will be hoping that they can achieve a better result in the next few weeks."

High Street fashion chain French Connection, which reported its results for the six months to 31 July, said that it expects retail to remain challenging for the rest of its financial year.

French Connection's like-for-like sales over the first half tumbled by 7% and its pre-tax loss widened to £15.1m from £5.9m last year.

Nevertheless, French Connection's Stephen Marks, the company's founder, chairman, chief executive and the largest shareholder, said its wholesale business was performing well adding: "We remain on target to return the business to profitability this year."