Sterling continued to climb against the dollar yesterday, hitting an eight-week high ahead of today's UK interest rate decision.

Against the dollar, one pound stood at $1.8764 this morning while sterling rose 0.2 per cent against the euro yesterday to rest at €1.4691. One pound stood at 215.2325 Japanese yen this morning.

The Bank of England is expected to leave interest rates on hold at 4.5 per cent today, while the European Central Bank is likely to raise rates to three per cent tomorrow.
"There is a bit of nervousness ahead of tomorrow's decision which may be percolating through to the euro/sterling rate," said Alan Castle, economist at Lehman Brothers.

"Unlike the ECB, they (the Bank of England) do not give the market much guidance as to what to expect ... because it is also an inflation report meeting there is a lot more uncertainty about the outcome on rates as there has been at any point this year," he told Reuters.

Shop prices rose at the steepest rate in two years in July, up 0.69 per cent on the previous year, according to the British Retail Consortium. This follows a 0.2 per cent decline in June.

In addition, buoyant housing market data, indications of a jump in factory costs and above-forecast inflation have fuelled talk of a UK rate rise.