Sterling Surges to Seven-Year High

Against the mark, the pound rose more than four pfennigs to close at DM2.9982 - although it had earlier exceeded three marks in floor trading - its highest level since April 1991.

The trade-weighted index, which measures the pound against a basket of other currencies, hit 105.0, up from 103.8 at the start of business, its highest since October 1990.

The surge in the pound was triggered by the 0.25% increase in interest rates ordered by the Bank of England on Thursday.

In its statement, the Bank said the policy dilemma - that the rate rises needed to curb the booming consumer economy would raise sterling and further hurt the struggling export industry - had "sharpened".

Economists said this was a hint rates would need to go up further and predicted a succession of 0.25% rises leading to a peak of up to 8% by next year.

Malcolm Bruce concerned by strength of pound

Liberal Democrat Treasury spokesman Malcom Bruce said the rise of the pound to three marks was "extremely concerning".

He said the strong pound would "seriously damage exports and ... the risks of a hard-landing for the UK economy later next year had increased significantly."