The pound hit a 14-year high against the dollar today amid expectations that the Bank of England will be forced to raise interest rates further in the next couple of months.

Sterling rose 0.5 per cent to $1.9857 against the US currency, the pound's highest level since it was ejected from the European exchange-rate mechanism in September 1992. City economists expect another quarter percentage point rise in interest rates, which would take the headline cost of borrowing to 5.5 per cent, by March.

Giving interest rate hawks further ammunition, the pound's strength coincided with data from the CBI that showed that the number of British manufacturers raising their prices is at its highest level in nearly 12 years.

In its quarterly industrial trends survey, the CBI said that 25 per cent of firms said that average domestic prices had gone up in the past three months, while 9 per cent said that they had fallen. The balance, of +15 per cent, is the highest since July 1995.

Ian McCafferty, the CBI’s chief economic adviser, said: "Having seen margins consistently squeezed by rising input costs and an inability to increase selling prices in a tough marketplace, manufacturers found room to correct this over the last three months."

He added: "They expect to continue to raise domestic prices in the next three months."

The figures also showed the largest quarterly rise in total orders in almost three years, and the fastest growth in output volumes since 1995.

The total new orders balance stood at +10 per cent in January against -5 per cent in October, while the output balance rose to +19 per cent from 0 per cent in October.

Mr McCafferty said: "This has been a surprisingly upbeat quarter for manufacturers, who have seen some return of their pricing power and solid growth in orders, and it makes a sharp improvement following a year of mixed fortune."

The Bank of England is due to publish the minutes of its January meeting tomorrow. The minutes will reveal how the Bank's nine-person Monetary Policy Committee voted in favour of raising rates to 5.25 per cent.

After this month's rise it emerged that consumer price inflation hit 3 per cent in the year to December, just shy of the 3.1 per cent level that would have automatically triggered an explanatory letter from Mervyn King, the Bank Governor, to Gordon Brown, and well above the Bank's 2 per cent target.

Geoff Dicks, economist at Royal Bank of Scotland, said: "January’s vote will be of significance as unanimous support, or even 8-1, would suggest a clear shift in a hawkish direction, making further policy tightening quite likely."

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