The exchange rate of British pound against U.S. dollar once climbed to 1.6578 in London market on Friday, hitting a two-year high, amid growing market confidence on the country's economic recovery.

The price of Britain's government bonds, however, declined, pushing the benchmark 10-year yields to 3.07 percent, the highest level since July 2011, since the better outlook of economy boosted the speculation of the tapering of the Bank of England (BoE).

In a daily note, Geoffrey Yu, a senior currency strategist at UBS AG in London, expected Britain's economic recovery to continue at a solid pace next year, driven by fixed investment and underlying domestic demand.

"That should be supportive for the pound," Yu said.

According the data compiled by Bloomberg, the pound has increased 6.7 percent against the green back over the past six month.

The dollar depreciated 2.5 percent over the same period, and the euro appreciated 4.4 percent, data also showed.

BoE warned in its monthly meeting minute released last week that a further appreciation of the pound could hamper Britain's economic recovery.

Capital Economics, a London-based economic forecaster, said that the pound is now above levels at which BoE policy makers have warned in the past would impede the re-balancing of the economy.

The agency forecasted the currency to drop back to 1.55 against dollar by end-2014 and to 1.5 dollar by end-2015.