Unions in the UK are defying the pleas of policy makers and pushing for wage settlements that would entrench inflation above its two per cent target rate.

On the dollar the pound reached $1.9721 in early foreign exchange trading on Monday from $1.9707 late yesterday and was valued at 66.02p on the euro, from 66.03p.

The wage demands, contained in a letter from the Transport & General Workers Union general secretary Tony Woodley, called for a "more assertive" negotiation stance.

The letter, obtained by Bloomberg, said that negotiators should aim for a "significant" increase above the rate of retail-price inflation.

"The real cost of living leaves our people struggling to pay their fuel and energy costs, and buy houses and food," said Mr Woodley.

A pay increase of five per cent "isn't a fair reward for the efforts workers have put in", following the solid economic growth of 2006.

Both the Bank of England and the European Central Bank are expected to leave rates on hold when they meet today for monthly rate-setting meetings.