9-0 rate rise verdict pushes pound closer to $2

Sterling raced to a fresh 11-year high against the dollar yesterday after the Bank of England brushed off concerns about the impact of the soaring exchange rate on the economy.

As the dollar came under attack from all sides, the pound rose almost a cent to $1.9140 and the euro hit a lifetime high of $1.2927.

The prospect of a $2 pound has prompted a flood of inquiries about cut-price holidays in America, British travel companies reported.

"Some people are finding that trips to America now offer better value than some of the more expensive short-haul destinations," said Thomson Holidays' spokeswoman Rachel O'Reilly.

The trigger for yesterday's rise in the pound was the pub lication of the minutes of the Bank of England's monetary policy committee. They showed that all nine members voted for the quarter-point rate rise earlier this month.

In a speech in Bristol last night, the Bank's deputy governor Rachel Lomax said the decision "reflected a top line view that inflationary pressures were likely to build over the next couple of years".

Ms Lomax said the committee had been surprised by the resilience of household spending and the rebound in the exchange rate. Although the committee discussed sterling's sharp rise since January, the minutes reported some members took the view that any impact on inflation was likely to be temporary.

"This illustrates the dangers for the MPC of adopting a nonchalant attitude to sterling appreciation," said Michael Hume, UK economist at Lehman Brothers.

Traders are betting that further rises in sterling will have no impact on the Bank's hawkish stance on inflation. Threadneedle Street has raised interest rates twice in recent months and is widely expected to raise base rates, currently at 4%, by another half point by the end of the year.

Profit taking later in the day checked the dollar's fall against both sterling and the single currency. Traders are wary of pushing the euro too close to the $1.30 mark, thought to be the European Central Bank's private target for intervening.

"The market is really scared to go long above $1.28 or $1.2850," said Craig Russell, senior foreign exchange dealer at Alaron FX in Chicago. "They don't like being near the high."