Sterling makes gains as economic cloud begins to lift

Better economic news, the minutes of the Bank of England Monetary Policy Committee's last monthly meeting, and a warning from Mervyn King that interest rates will eventually have to increase combined to prompt a sharp rise in the pound yesterday.

Sterling rose by 1.3 per cent against the dollar, and was also up against the euro, after the Bank of England's Governor warned families that higher interest rates would eventually return.

Mr King's comments emerged as the MPC's minutes for its meeting earlier this month revealed that all nine members had voted to keep rates on hold at 0.5 per cent and not to expand the Bank's programme of quantitative easing.

The unanimity of the MPC's decision was seen by many economists as positive news, as was the latest industrial trends survey from the Confederation of British Industry.

The CBI said that 4 per cent more manufacturers expected to raise output over the next three months than to cut it.

"This raises hope the industrial sector may expand in óthe fourth quarter for the first time in two years," said Howard Archer, chief economist at Global Insight.