Pound breaks 26-year-old exchange record

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Sterling reached its highest level against the dollar in over a quarter of a century earlier today.

Briefly trading at an exchange rate of £1 to $2.01, the UK currency hit its highest level since 1981 after breaking the $2 barrier yesterday.

Two separate indicators increasing the likelihood that the Bank of England will up interest rates when its monetary policy committee (MPC) meets next month prompted the surge.

First the Office for National Statistics (ONS) published figures showing that average earnings increased at their fastest rate since 2004 in the year to February – suggesting that inflationary pressures are strongly upwards at present.

Then the Bank published the minutes of April's MPC meeting, which showed that two members supported a rate hike to 5.5 per cent. The minutes also revealed that other members who voted for a hold believed inflation was trending upwards

Economists have said the unusually strong pound is good news for British tourists travelling to the US, but presents difficulties for the manufacturing sector which heavily relies on exports.

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