The surge in the pound to 26-year highs against the dollar this year is helping to shield Britain from sky-high global commodity costs, including record prices for oil reached last month.

Calculations by The Times underline the extent of the boon to the nation’s economy, manufacturers and other energy users from sterling’s strength against the struggling US currency, which is under pressure across the board on foreign exchanges.

While the benchmark North Sea Brent crude price has jumped by 13 per cent over the past two years, in sterling terms, the pound’s rise means that this translates into a 1 per cent decline.

Similarly, while oil is down 9 per cent on a year ago in dollar terms, the decline in sterling terms is 15 per cent. And over the past month, while crude costs have risen by 9 per cent in dollars, the increase after factoring in a stronger pound is only 6.5 per cent.

While sterling’s potency against the dollar hampers Britain’s exporters attempting to sell goods in the US and other dollar-based markets, other sectors of manufacturing are benefiting from the strong dampening effect on their raw material and energy costs.

The effects are also a powerful aid to the Bank of England in its battle to rein back inflation, helping to limit the size of interest rate increases needed.

Britain’s import price inflation has fallen sharply from a peak above 7 per cent early last year to 0.6 per cent in figures for June released last week, having spent the first months of 2007 in negative territory. Much of this can be attributed the pound’s sharp rise against the greenback, by some 6.9 per cent over the past 12 months.

The Bank is likely to remain wary, however, over the potential inflationary impact should these trends abruptly reverse to see the pound falling back sharply on currency markets.

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