Pound hits 5-year high against dollar

Sterling has reached a five-year high against the US dollar on speculation that UK interest rates are set to rise.

The pound climbed against the dollar after strong lending figures released on Wednesday were seen as raising the prospect of an early rate increase.

Sterling reached a five year high of $1.7082 before falling back to $1.699 in later trade.

The US dollar weakened against a number of currencies following Tuesday's statement by the Federal Reserve that US rates are set to remain low for some time.

The dollar hit a three-year low against the yen of 107.9 yen before recovering later in the day.

Credit surge

"Real money continues to buy sterling against a range of currencies," analysts at UBS said.

"Market participants' realization that the Bank of England will be the first major central bank to hike interest rates grows stronger every week."

Figures released on Wednesday morning showed that Britons borrowed a record £10.7bn last month, with the credit surge driven mainly by mortgage lending.

The figure was the highest total since the Bank of England began releasing the figures 10 years ago.

The Bank of England's rate-setting body - the monetary policy committee (MPC) - meets next week.

Analysts think they will use next weeks meeting to raise rates from their current level of 3.5% in order to prevent lending from getting out of control.

Minutes of the last MPC meeting showed that four of the nine members had voted for higher interest rates.