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UK pound edges above the $2 level UK pound edges above the $2 level
(about 1 hour later)
The pound has risen briefly above $2 - close to record highs - as investors price in an interest rate rise in July. The pound has risen briefly above $2 - close to record highs - as investors expect an interest rate rise in July.
In early trade in Europe, one pound touched $2.0006, almost reaching May's 26-year high of $2.013 dollars.In early trade in Europe, one pound touched $2.0006, almost reaching May's 26-year high of $2.013 dollars.
Bank of England minutes released last week showed that the main rate-setting committee voted five members to four to freeze rates at 5.5% in June.Bank of England minutes released last week showed that the main rate-setting committee voted five members to four to freeze rates at 5.5% in June.
Analysts said this makes an interest rate rise to 5.75% in July a near certainty to combat inflation. Analysts said this makes an interest rate rise to 5.75% in July a near certainty, in a bid to beat inflation.
Among the four members to vote for a quarter point rate rise in June was Bank of England Governor Mervyn King.
The Bank chief has repeatedly expressed his desire to bring back consumer price inflation to below the government's 2% target.
We urge again the MPC to be cautious and take account of the long term impact of its actions on business David Kern, the British Chambers of Commerce
It fell to 2.5% in May from 2.8% the previous month.
Good for touristsGood for tourists
The likelihood of higher interest rates makes the pound more attractive to global currency investors, as they can gain higher returns. Expectations of higher interest rates saw the UK pound breach the $2 level in morning trade in Europe with currency investors betting on sterling to gain higher returns than other currencies.
A stronger pound is also good news for British tourists hunting for bargains in the US, but does not augur well for UK exporters, who could suffer as their goods become more expensive. The pound, which later slipped a fraction to 1.999 dollars in mid-morning trade, has gained 8% against the dollar over the past 12 months.
The pound has now gained 8% against the dollar over the past 12 months. David Kern, economic adviser to the British Chambers of Commerce, said the higher pound acted as a brake on the economy.
"We appreciate that the MPC (Monetary Policy Committee) has to control inflation but a stronger pound performs a similar role in dampening economic activity," said David Kern, economic adviser to the British Chambers of Commerce.
Some analysts expect UK interest rates to get as high as 6% by the end of this year.Some analysts expect UK interest rates to get as high as 6% by the end of this year.
"We urge again the MPC to be cautious and take account of the long term impact of its actions on business."
While the stronger pound is good news for British tourists hunting for bargains in the US, it does not augur well for UK exporters, who could suffer as their goods become more expensive.