Pound Strengthens As Rate Speculation Rises

The pound reached a new six-year high against the dollar on Tuesday as new economic figures boosted expectations of a rise in interest rates.

Sterling rose in the moments after a closely-watched survey of manufacturers was released confirming better than expected output and new order growth.

The CIPS/Markit Purchasing Managers' Index (PMI) study said strong domestic demand boosted new business sales, while export orders also edged higher despite the recent strength of the pound which has made British-manufactured goods more expensive overseas.

Manufacturing employment rose for the fourteenth successive month in June, the survey found, with rising job numbers seen across all sectors and led by small and medium-sized businesses.

The Chancellor is under pressure to help boost manufacturing output

It was, CIPS said, the second-highest reading for the study as a whole in 40 months.

Rob Dobson, senior economist at Markit, said the performance added to hopes that the UK's economic recovery was becoming more balanced and broad-based.

"UK manufacturing continued to flourish in June, rounding off one of the best quarters for the sector over the past two decades.

"As a broader expansion is also a more sustainable expansion, the ongoing surging growth of output and new orders ... is exactly what is required."

The numbers are likely to reassure policymakers who have wanted to see a more broad-based recovery based on greater exports, manufacturing and business investment.

The update meant sterling climbed to a new six-year high of more than $1.71 as the economic recovery makes it increasingly likely that the Bank of England will take the lead on raising interest rates later this year.

While a move to raise bank rate would increase borrowing costs, a strengthening pound provides holiday-makers to the US with an immediate boost as they will get more dollars for their pound.

Tourist rates are hovering around $1.68.6 to the pound

Sterling also rose in value - by more than a third of a cent - against the euro on Tuesday to €1.25 but the single European currency remains fairly strong despite lacklustre growth in the euro area.

The upbeat assessment of UK manufacturing was not shared by unions who pledged to fight an announcement by Tata Steel that it planned to shed 400 jobs at its Port Talbot plant in South Wales.

The company said it had to reduce costs to compete better in the strip products business in Britain.

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