STERLING endured another rollercoaster session on Wednesday, with the British currency jumping after higher than forecast inflation and then plummeting on renewed Brexit fears.
The pound was trading flat at $1.315 at the London close, having at one point surged to its highest level since July when it touched 1.321.
It was buoyed by inflation growing more than expected last month as higher price tags for transport, theatre tickets and autumn clothing raised pressure on household finances.
Figures from the Office for National Statistics (ONS) showed the Consumer Prices Index (CPI) rose to 2.7 per cent in August, compared to 2.5% in July.
However, British politics acted once again as the currency's scourge, with Theresa May being told her Brexit plans need to be "reworked" as time runs out to reach a deal with the European Union.
European Council president Donald Tusk said major issues remain to be resolved, including avoiding a hard border in Ireland and the future trading relationship between Britain and the EU.
David Madden, market analyst at CMC, said: "The respectable increase in demand highlights how robust the UK economy actually is. The political situation is a different story.
"The British economy is ticking along nicely, but the political uncertainty is holding the pound back."
Versus the euro, the pound was also flat at 1.126 euro.
The FTSE 100, meanwhile, closed up 30.89 points, or 0.42%, at 7,331.12 as traders moved on from the US-China trade war.
"The tit-for-tat tariff attacks that we saw between the US and China yesterday weren't as harsh as some dealers were expecting," Mr Madden added.
In stocks, Tesco shares closed marginally up after the supermarket titan unveiled its new discount store format called Jack's, as it attempts to take the fight to German discounters Aldi and Lidl.
The grocery firm plans to open between 10 and 15 branches over the next year, investing at least £20 million in the project and creating up to 250 new jobs. Shares ended up 0.7p at 235.8p.
In contrast, shares in rival Sainsbury's closed down 3.8p at 316.9p. It came after Britain's competition watchdog launched the second stage of its investigation into its proposed £12 billion merger with Asda.
The deal will now be subject to a so-called Phase Two in-depth probe to assess how it could affect competition for UK shoppers, the Competition and Markets Authority (CMA) confirmed.
Shares in B&Q owner Kingfisher tumbled as half-year profits were hit by woes in its French arm and amid consumer belt-tightening in the UK.
The retailer's stock closed down 6.3%, or 16.6p, to 247p after it posted a 30% fall in statutory pre-tax profit to £281m for the six months to July 31, with profits down 14.8% on an underlying basis at £375m.
In Europe, Germany's DAX closed up 0.5% and France's CAC 40 ended the day up 0.53%.
A barrel of Brent crude was trading at $79.5, a rise of 0.5%.
The biggest risers on the FTSE 100 were Antofagasta up 46.4p at 837p, Anglo American up 79.6p at 1,655.6p, Prudential up 61.5p at 1,725.5p and Fresnillo up 29.2p at 825.6p.
The biggest fallers on the FTSE 100 were Kingfisher down 16.6p at 247p, NMC down 106p at 3,330p, Severn Trent down 44.5p at 1,847p and National Grid down 21.4p at 773.9p.
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