Mervyn King's warning over interest rates lifts pound

The pound soared today after Bank of England Governor Mervyn King stunned the City with a warning to Britons to prepare for interest rate rises.

Sterling rose 1.84 cents to $1.6566 and 1.45 cents to �1.1106 in one of its strongest days for months.

It came after King wrote in The Herald newspaper: "I do not know for how long interest rates will remain so low. But at some point they will return to more normal levels and it would be wise to take this into account in your financial planning."

Minutes from the Bank today showed all nine members of the monetary policy committee voted to keep rates at 0.5% this month. They also agreed to press on with £175 billion of quantitative easing.

While this was widely expected, the newspaper article stunned investors who saw it as a change of tack from the Bank.

Last month King said the fall in sterling was "helpful" for the UK economy.

Neil Jones of Mizuho Corporate Bank in London said: "King is turning and so is the pound. This is a seismic shift in thinking."

The Bank must next month decide whether to extend QE beyond £175 billion or pause.

Howard Archer of IHS Global Insight said the meeting "could well prove to be a "spiky affair" as MPC members argue over whether the economy needs further emergency aid or not.

"There remains a distinct possibility that the committee could decide to spend a further £25 billion on QE, taking the total up to £200 billion," he said.