UK factory boom sees sterling fly

STERLING raced to its highest level for nearly five years yesterday after a forecast-busting performance by British factories, writes Hugo Duncan.

The purchasing managers’ index of activity in the manufacturing sector – where scores above 50 show growth – rose to a better-than-expected 57.3 in April from 55.8 in March.

Output from British factories, which are now creating around 10,000 jobs a month, increased at one of the fastest rates seen in the last 20 years, according to the report by Markit and the Chartered Institute of Purchasing and Supply.

The survey came just days after official figures showed the UK economy growing at its fastest pace since 2007 and sent the pound soaring against the dollar.

Sterling rose as high as $1.6921 – a level not seen since August 2009 and up nearly 14pc since July last year – as investors gambled on an early rise in interest rates.

‘We see the first rate hike in the final quarter of this year,’ said Vasileios Gkionakis, global head of currencies at Uni Credit.

Alex Edwards, head of the corporate desk at UK Forex, said the prospect of rates rising from the current all-time low of 0.5pc will push the pound towards $1.70 in the coming days.

Rob Wood, a former economist at the Bank of England and now at Berenberg Bank, said: ‘Record low interest rates are increasingly unnecessary and difficult to justify.’