THE POUND, up 1 per cent against the dollar last week, may gain even more on evidence that the economy is rebounding. Speculation that the Bank of England will raise interest rates by the end of the year - keeping them unchanged this week, however - may also bolster the currency.

"Sterling has got a good economy behind it and rates have to go up," said Lee Ferridge, head of global currency strategy at Rabobank International. He expects the pound to rise to $1.65 by the end of the year, a gain of more than 2 per cent from Friday's rate.

The pound climbed to a 10-day high of $1.6156 on Friday. It slipped to $1.6044 by the close of trading, up from $1.5875 a week earlier. It rose to 0.6606 per euro after being near to a one-month low of 0.6626 earlier on.

Meanwhile, reports on retail sales and manufacturing are due on Tuesday as the Bank of England begins its two-day rate- setting session.

Higher interest rates could draw investors to the pound because a rise would mean that the return on sterling deposits increases in turn. Three- month pound deposits pay 246 basis points more than euro deposits, and 38 basis points less than dollar deposits.

While that is good news for investors, it is bad for UK manufacturers since a stronger currency means British exports are more expensive overseas.

"It would be bad for manufacturing for the pound to strengthen," said Rick Martignetti, assistant treasurer at Electrocomponents, the UK's largest distributor of electronic parts. At the moment "the huge differential [in rates] is what's keeping the pound high" against the euro, he said.

Policy makers at the Bank of England will decide lending rates on Wednesday. They voted to cut the benchmark re- purchase rate to 5 per cent in June in an attempt to stimulate growth amid evidence of subdued inflation. "Hopefully inflation will remain benign and the Bank of England won't be called on to raise interest rates," said Mr Martignetti.

Economists are split on whether the Bank of England will raise rates before the end of December. Eight out of a total of 15 economists in a Bloomberg News poll expected higher borrowing costs, while seven saw no change.

"November is the most likely time for the Bank of England to take back June's quarter percentage point rate cut," said Geoffrey Dicks, a UK economist at Greenwich NatWest. That was "an insurance policy" to avert recession in the UK, he said.

Bank of England rate-setters will be able to digest new reports on the economy on Tuesday when the Government releases figures on manufacturing and industrial production in July. The British Retail Consortium releases its August sales monitor and the CBI releases its distributive trades survey on the same day.

Some investors are betting that evidence of improved economic activity will persuade the Bank of England to raise interest rates before the end of the year.

The 5.68 per cent rate on the December sterling interest rate futures contract is 46 basis points more than current three-month lending rates, suggesting expectations for at least a 25 basis point increase in borrowing costs before then.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own