Pound Hits Two-Year High Against Dollar

The pound has hit its highest level against the US dollar for nearly two-and-a-half years amid Britain's buoyant economic recovery.

Sterling rose to 1.65 dollars, a level not seen since August 2011, as strong economic figures continue to provide a boost and spur expectations that the Bank of England will move to raise interest rates earlier than expected.

A report from the Centre for Economics and Business Research (CEBR) on Thursday predicted the UK would become Europe's largest economy within two decades, overtaking France and Germany.

The UK recovery has been picking up pace in recent months and official figures saw growth data revised higher last week.

Figures correct at 16:06 GMT Friday December 27

The Office for National Statistics (ONS) said growth in 2012 was 0.3%, up from a previous estimate of 0.1%, while the figure for the first quarter of this year was revised up from 0.4% to 0.5% and for the second quarter from 0.7% to 0.8%.

A stronger pound is good news for tourists, as it boosts their spending power.

UK holidaymakers have up to 28% more spending money for their trips as a result of the pound's recent strength, according to a Post Office Travel Money survey.

It has also helped bring down UK inflation, by making it cheaper for Britain to import goods and services.

But the gains in sterling could provide a headache for manufacturers and exporters, as a stronger pound makes products more expensive for overseas buyers and therefore could dampen demand.

The Bank's Monetary Policy Committee recently warned that a significant increase in the pound's strength could pose risks to the recovery, while it could also dent the Government's aims to rebalance the economy towards manufacturing and exports.

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