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THE POUND is expected to keep this month's 1 per cent gain against the euro amid expectations that the Bank of England will raise interest rates again as economic growth picks up pace.

Expectations for higher rates got a boost last week from reports showing a leap in retail sales in October; the unemployment rate at a 19-year low, and a bigger than expected majority of the Bank of England's Monetary Policy Committee in favour of an interest rate increase on 4 November.

Prospects for faster growth and higher rates "are good news for the pound", said Jane Foley, a currency strategist at Barclays Capital. She predicted the pound will soon beat its highest level of pounds 0.6319 per euro which it reached in September.

On Friday, sterling was at pounds 0.6377 per euro. That's the equivalent of a pound-mark rate of DM3.07. The pound was also little changed against the dollar at $1.6170, up 0.3 per cent from a week earlier.

Lending rates in the UK "have further to go", said Stuart Wigfall, manager at Fuji-Lord Abbett International. He expects the pound to hold its 9 per cent gain against the euro since 1 January.

Investors earn 5.70 per cent on a three-month pound deposit, 260 basis points more than euro deposits and just 33 basis points fewer than their dollar counterparts.

"The interest rate differential will support the pound," said Tony Norris, at First International Advisers.

Dr Sushil Wadhwani, an independent member of the Monetary Policy Committee, said on Friday that inflation is still a threat in the UK.

This suggests he may be inclined towards raising rates again. …