Sterling rose against the dollar and euro on Wednesday after data showed Britain's unemployment rate unexpectedly fell to its lowest level since mid-2008 in the three months to August, though pay growth was a touch slower than expected.

The Office for National Statistics said Britain's unemployment rate fell to 5.4 per cent, down from 5.5 per cent in the three months to July. The number of people in employment jumped by 140,000, pushing the employment rate to 73.6 per cent, the highest since records began in 1971.

The total earnings of workers -- including bonuses -- rose by 3.0 per cent, edging up from the three months to July, but short of a forecast of 3.1 per cent in the Reuters poll.

Sterling rose to $1.5366 after the data, leaving it up 0.8 per cent on the day. Against the euro, sterling gained 0.5 per cent to 74.30 pence. It had hit an eight-month trough of 74.93 pence per euro on Tuesday after data showed consumer inflation dipped back below zero in September.

"Real incomes are going up which is good for domestic activity, so we think May will probably be when (the Bank of England) starts raising interest rates," said ING currency strategist Chris Turner.

"(BoE Governor Mark) Carney's position of a serious debate starting on tightening around the end of the year is still probably quite likely," Turner said, adding that the pound was underpriced against the single currency and was likely to strengthen to around 72 pence per euro.

Some analysts said sterling would continue to be supported by SABMiller's merger with Anheuser-Busch InBev , the world's largest brewer -- a deal worth £69 billion in cash.

But others said sterling was unlikely to strengthen much against the dollar, even if it might against the euro.

"Rather than advancing higher or attempting to recover momentum against the dollar, it looks far more likely that sterling will continue drifting towards $1.51, with this being the level where traders found confidence throughout previous weeks that this might be a 'bottom' for the pair," wrote FXTM analyst Jameel Ahmad.

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