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British Pound May Gain Against Euro as Key BOE Interest Rates Seen Rising

Feb. 4 (Bloomberg) -- The British pound may advance against the euro as investors bet the gap in interest rates between the U.K. and the economy of the 12-countries sharing the euro will widen this week, spurring demand for the currency.

All but one of the 38 economists polled by Bloomberg News on Friday expect the Bank of England to lift its key rate a quarter percentage point to 4 percent on Thursday. Economists say the European Central Bank will keep its rate at 2 percent.

``We think sterling will do ok,'' said Jesper Dannesboe, head of currency strategy at Dresdner Kleinwort Wasserstein in London. ``Recent U.K. data has been robust.'' Dresdner expects policy makers to lift its rate to 4 percent.

The pound was at 68.24 pence per euro by 6:22 a.m. in London from 68.20 yesterday. It has gained 2.9 percent versus Europe's common currency in the past year. Against the dollar, it was at $1.8381 from $1.8392.

U.K. manufacturing expanded at the fastest pace in four years last month, the latest evidence economists say makes a rise in borrowing costs more likely when the U.K. central bank makes its latest decision on Thursday.

Britain's economic growth is strengthening and the Bank of England should pursue a ``pre-emptive'' policy in setting interest rates, Ed Balls, chief economic adviser to the U.K. Treasury said yesterday in a speech to the Local Government Association in Leeds, northern England.


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