The U.K.’s government bond grade was affirmed at AA+, the second-highest level, by Fitch Ratings, which cited robust gross-domestic-product growth and an improving labor market.

“Favorable macroeconomic trends, including strong GDP growth, falling unemployment and inflation close to the 2 percent target, have continued in the U.K. economy since our last review in December 2013,” the ratings company said today in a statement. The nation’s credit outlook was affirmed as stable, Fitch said. The pound gained for a third day against the dollar and advanced to strongest since 2012 versus the euro.

Britain’s improving economy is raising the prospect that Bank of England Governor Mark Carney will increase interest rates as soon as this year. The result is a rally in the pound that has made it the top-performing major currency during the past month, while the nation’s bonds have become the worst performers in June.

A rate increase “could happen sooner than markets currently expect,” Carney said yesterday. A Bloomberg survey of economists projects the BOE will increase its benchmark to 0.75 percent in the first quarter of next year from the current record low of 0.5 percent, based on the median forecast.

Pound Advances

The pound rose 0.3 percent to $1.6984 at 7:36 a.m. in London after advancing to $1.6987, the highest since May 6. Sterling has gained 0.9 percent in the past month, the best performer of 16 major currencies against the dollar. The U.K. currency climbed 0.2 percent to 79.89 pence per euro after reaching 79.88 pence, the strongest since November 2012.

Ten-year gilts haven’t started trading today in London. The benchmark yield closed at 2.72 percent yesterday after rising to 2.76 percent on June 11, the highest since April 4.

U.K. government debt due in more than a year has fallen 0.8 percent in June, according to Bloomberg and the European Federation of Financial Analysts Societies. It was the biggest loss of 26 debt indexes worldwide.

Bond markets often disregard rating and outlook changes. France’s 10-year yield, which was 3.08 percent when S&P removed its top rating in January 2012, tumbled to a record 1.66 percent this month.

From the start of this year, Fitch, Moody’s Investors Service, Standard & Poor’s and DBRS Inc. had to release announcement schedules for ratings decisions under European Union rules introduced in the wake of the region’s debt crisis.

Assessors will be restricted to three judgments per year on sovereign borrowers that haven’t asked or paid for a grade, and will need to review ratings at least every six months.

(Source: Bloomberg)