# GBP: History and Trading the British Pound Sterling

![GBP: The abbreviation for British pound sterling, the official currency of the United Kingdom.](https://www.investopedia.com/thmb/54MQUeEmZ3QVYxsnkb2EVxAw69U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/gbp.asp-FINAL-1-b79d42cd262c488394ad6e611fd82d5b.png)

*— Investopedia / Joules Garcia*

## What Is the GBP?

GBP is the abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories of South Georgia, the South Sandwich Islands, and British Antarctic Territory and the U.K. crown dependencies, the Isle of Man and the Channel Islands.

The British pound sterling is symbolized by the pound sign (£) and is sometimes referred to as “sterling” or by the nickname “quid.”

### Key Takeaways

*   GBP is the abbreviation for the British pound sterling, the official currency of the United Kingdom.
*   The British pound sterling is symbolized by the pound sign (£) and referred to as “sterling” or by the nickname “quid.”
*   The most common trading pairs involving the British pound are the euro (EUR/GBP) and the U.S. dollar (GBP/USD).

## Trading the GBP

The British pound competes with the U.S. dollar (USD), [euro (EUR)](https://www.investopedia.com/terms/e/euro.asp), and [Japanese yen (JPY)](https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp) in daily volume trading. The most common [currency pairs](https://www.investopedia.com/terms/forex/f/foreign-currency-pairs.asp) involving the British pound are the euro (EUR/GBP) and the U.S. dollar (GBP/USD). [GBP/USD](https://www.investopedia.com/terms/forex/g/gbp-usd-british-pound-us-dollar-currency-pair.asp) is referred to as [cable](https://www.investopedia.com/terms/c/cable.asp) by foreign exchange traders.

The penny sterling or pence is 1/100th of a pound. Many stocks are traded in pence rather than in pounds. Stock exchanges may use GBX to indicate pence. Though the official name of GBP is pound sterling, “sterling” or STG may be used more commonly in accounting or [foreign exchange (forex)](https://www.investopedia.com/terms/f/foreign-exchange.asp) settings.

Currencies [pegged](https://www.investopedia.com/terms/c/currency-peg.asp) to the British pound include the Falkland Islands pound, Gibraltar pound, Saint Helena pound, Jersey pound (JEP), Guernsey pound (GGP), Manx pound, Scotland notes, and Northern Ireland notes.

> **Fast Fact**
>
> The GBP, or British pound sterling, is the oldest active legal tender in the world.

## History of the GBP

The British pound became the official currency of the United Kingdom when England and Scotland united to form a single country in 1707, but the pound was used as a form of money in the year 760. Until 1855, when printing began, the [Bank of England](https://www.investopedia.com/terms/b/boe.asp) wrote all banknotes by hand.

The British pound served as currency in the colonies of the British Empire, including Australia, New Zealand, and Canada. In the late 19th and early 20th centuries, many countries tied the value of their currencies to the price of gold. The [gold standard](https://www.investopedia.com/ask/answers/09/gold-standard.asp) offered a uniform way to determine value among world currencies. Before World War I, the United Kingdom used the gold standard to set the value of the British pound.

At the outbreak of World War I, the country abandoned the gold standard, then reinstated it in post-war 1925, only to abandon it again during the [Great Depression](https://www.investopedia.com/terms/g/great_depression.asp). In 1971, the United Kingdom allowed the British pound to [float](https://www.investopedia.com/terms/f/floatingexchangerate.asp) freely, allowing market forces to determine its value. In 2002, when the euro became the common currency of most European Union (EU) member nations, the U.K. kept the GBP as its official currency. This turned out to be a good decision for the U.K., as it officially left the EU in 2020.

## Legislation and the GBP

In a June 2016 referendum, British voters supported a measure to leave the European Union through a process called [Brexit](https://www.investopedia.com/terms/b/brexit.asp). The GBP declined significantly upon the U.K.’s split from the EU, and [the value fluctuated](https://www.investopedia.com/articles/forex-currencies/070516/how-brexit-can-impact-euro-and-us-dollar.asp) in response to trade negotiations.

The pound sterling declined again in Sept. 2022 after Prime Minister [Liz Truss](https://www.investopedia.com/who-is-liz-truss-6747296) announced economic policies on tax cuts. Although the Truss government aimed to boost U.K. economic productivity, investors and forex traders were concerned that tax cuts would increase already-high inflation and debt. The GBP/USD sank to an all-time low of 1.03 on Sept. 26, 2022.

The Spring Budget 2024, delivered by UK Chancellor Jeremy Hunt, introduced several key changes aimed at boosting economic growth and reducing the tax burden on individuals. Major announcements include cuts to National Insurance contributions, the abolition of the "non-dom" tax regime, the introduction of a UK ISA, and changes to capital gains tax on residential property. The budget also outlined transitional arrangements for existing non-doms and announced the launch of British savings bonds. These measures are designed to stimulate investment, create jobs, and lower taxes, potentially impacting the UK economy and the value of the British pound in the coming years.

## GBP and the Bank of England

The Bank of England plays a big part role in influencing the value of GBP through its monetary policy decisions. As the central bank of the United Kingdom, the BoE is responsible for setting interest rates, controlling inflation, and ensuring financial stability.

The bank's primary tool for affecting GBP is the base interest rate, which influences borrowing costs and overall economic activity. When the BoE raises interest rates, it makes borrowing more expensive, which tends to slow down consumer spending and reduce inflationary pressures. Conversely, lowering rates can stimulate economic growth by encouraging borrowing and spending. As of September 2024, the Bank of England held interest rates at 5%.

In addition to interest rate policies, the Bank of England also uses quantitative easing (QE) to influence GBP. QE involves the BoE purchasing government bonds and other securities to inject liquidity into the economy, encouraging lending and investment. A higher supply of GBP in circulation tends to reduce its value compared to other currencies. For example, the Bank of England infused billions of GBP into the economy during the pandemic.

## Is British Pound and Sterling the Same?

Yes. The official name of the U.K. currency is pound sterling, but it is often called the British pound or sterling.

## Why Is the British Pound Called Sterling?

Reportedly, the U.K.'s currency evolved from sterling silver pennies that were used in the late 700's.

## Why Are Pounds Called Quid?

There doesn't seem to be a definitive answer, similar to the dollar being referred to as "buck." Some believe it originates from quid pro quo, Latin for "something for something," while others think it came from Quidhampton, where there was once a [royal paper mill](https://www.investopedia.com/terms/q/quid.asp).

## The Bottom Line

The GBP⁠, or British pound sterling, is the official currency of the United Kingdom. The GBP is the oldest currency in the world that is still used as legal tender. Symbolized by the pound sign (£), the GBP has one of the highest trading volumes in the world.

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