The pound has spiked against the dollar in the wake of a report that the UK and the EU have agreed a deal over the UK's Brexit divorce bill, which could unlock vital trade talks next month.

The currency jumped around 0.9 per cent to $1.3367 in late trade on Tuesday, after the Daily Telegraph reported that both sides were on the verge of agreeing a €44-55bn UK bill to settle its liabilities with the bloc.

Against the euro, sterling rose more than 1 per cent to €1.1271.

Theresa May will offer to pay £40bn for 'divorce bill' if trade talks begin

If the settlement is agreed, it could result in the EU side agreeing to start discussions with Britain on an interim trade deal for the UK next month, reducing the possibility of a calamitous disorderly Brexit in March 2019.

The Telegraph said the final payment figure was being "left open to interpretation" and would depend on how each side calculates the final figure from an "agreed methodology".

Divorce deal report bounce

Reuters Eikon

However, the issue of how to avoid a "hard border" between Northern Ireland and the Republic of Ireland after the UK leaves the customs union in March 2019 could yet scupper progress.

The EU had demanded substantive progress on the divorce bill, EU citizens' rights and the Irish border before moving on to trade negotiations with the UK.

Sterling suffered a record one-day fall after the British people unexpectedly voted to leave the EU on 23 June 2016.