The pound has risen near to a five year high after the governor of the Bank of England, Mark Carney, signalled interest rates may rise this year.
Sterling rose 0.32% against the dollar to $1.698, while against the euro it was up 0.15% at 1.251 euros.
In a keynote speech, Mr Carney said a rate rise “could happen sooner than markets currently expect”.
The consensus among economists was that rates would rise in the first half of next year, or even earlier.
BBC economics editor Robert Peston says that although the comments point to an increase this year, any rise “will be small and gradual”.
Meanwhile, economists said market interest rates had risen 10 basis points on Friday morning – immediately raising business borrowing costs – while the futures markets had already priced in interest rate hikes.
Alan Clarke, eurozone and UK economist at Scotiabank, said Mr Carney had a habit of making big shifts in policy.
He said: “Three weeks ago he [Mr Carney] was dovish, now he is in camp hawk. He’s not a steady Eddie, he’s a bit more volatile.”
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