Pound Rises to 26-Year High After Bank of England Holds Rates

The U.K. pound rose to its strongest in 26 years against the dollar after the Bank of England refrained from cutting interest rates.

Britain's currency traded above $2.10 for a second day as the central bank held its main rate at 5.75 percent on concern rising oil and food prices will fan inflation. All but three of 61 economists surveyed by Bloomberg News had forecast no change in borrowing costs.

``Sterling's appreciated in response,'' said Paul Robinson, a currency strategist at Barclays Capital in London and a former Bank of England economist. ``The decision was pretty much as expected, though there was the possibility of a cut.''

The pound gained to $2.1088, the highest since May 8, 1981, and traded at $2.1058 by 2:30 p.m. in London, from $2.1035 yesterday. It was little changed at 69.63 pence per euro.

The U.K. currency has strengthened 7.5 percent against the dollar this year as the Bank of England, led by Governor Mervyn King, raised interest rates three times to a six-year high. The Federal Reserve lowered them twice to 4.5 percent in the same period. Robinson predicted the U.K. central bank will start easing in February 2008.

``Sterling has gained on the back of dollar weakness,'' said Audrey Childe-Freeman, an economist at CIBC World Markets in London. ``We're probably close to the peak already.''

Childe-Freeman raised her year-end forecast for the pound to $2.14, from $2.10.
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