July 23 (Bloomberg) -- The pound surged and gilts fell after a government report showed the U.K. economy grew at the fastest pace in four years in the second quarter. Sterling surpassed $1.54 against the dollar and climbed against the euro and yen as the Office for National Statistics said gross domestic product rose 1.1 percent in the three months through June, compared with 0.3 percent growth in the previous quarter. That was almost twice the 0.6 percent median prediction from 32 economists surveyed by Bloomberg. "The U.K. GDP figures are really tremendous," said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. "It will put more pressure on the dollar." The pound advanced 1.1 percent to $1.5428 at 4:35 p.m. in London, approaching the three-month high of $1.5472 reached on July 15. The pound rose 1.51 percent to 83.22 pence per euro, and advanced 1.85 percent to 134.5 pence against the yen. The British growth figures, driven by a rebound in services, manufacturing and construction, followed a German report that showed business confidence in Europe's biggest economy unexpectedly surged to a three-year high. The data may suggest European economies are faring better than the U.S., where Federal Reserve Chairman Ben S. Bernanke said yesterday that the nation still needs stimulus. Sterling 'Breakout' Britain's growth pickup may sharpen the divide among policy makers as the Bank of England considers whether the economy faces a greater threat from inflation or needs more support to avert a return to recession. "The market was prepared for a strong number, but that has exceeded that figure," said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. "Gains from the breakout we have seen in sterling will continue." The yield on the 10-year U.K. bond rose 8 basis points to 3.44 percent and the two-year note advanced 7 basis points to 0.88 percent, both the monthly highs. Gilts returned 5.78 percent this year, compared with a gain of 3.04 percent for bonds in the euro area, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt handed investors 6.5 percent, the indexes showed. Britain is the first of the Group of Seven nations to report second-quarter GDP and today's estimate is the first of three. The statistics office uses data for the first two months of the period from about 40 percent of companies assessed, or about 40,000 businesses, and three-month figures for a further 20,000 firms. The nation is enduring the deepest budget squeeze since World War II while facing a debt crisis in the euro region, its biggest trading partner. Prime Minister David Cameron said this week that his government is "getting on top of Britain's economic and financial problems" after Chancellor of the Exchequer George Osborne's June 22 emergency budget.

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