Sept. 19 (Bloomberg) -- The pound rose against the euro on speculation the minutes of the last Bank of England policy meeting will show policy makers agreed interest rates won't be eased further.

The minutes, due for release Sept. 21, will be closely watched after policy makers were unexpectedly split five to four in August in favor of cutting rates for the first time in more than two years. Last week reports showed sales at U.K. retailers were lower than expected in August, while inflation quickened at the fastest pace in at least eight years.

``The mixed data means the BOE will keep rates on hold,'' said Marios Maratheftis, a currency strategist at Standard Chartered Plc in London. ``That will support the pound. This recent weakness won't be sustained for much longer.''

Against the euro, the pound was at 67.36 pence by 9 a.m. in London from 67.74 pence on Sept. 16. It was also at $1.8000 from $1.8035.

The pound was also buoyed as the euro fell to its lowest in more than seven weeks versus the dollar after Germany's election failed to produce a winner, dimming the prospect of lower taxes and labor costs promised by opposition leader Angela Merkel.

Nickell's View

Gains for the pound may be limited after Bank of England policy maker Stephen Nickell said growth may be slower than forecast by the bank, according to the Financial Times.

Nickell said in an interview consumer spending growth was being held back by high oil prices, an easing in the labor market and higher household debt. The U.K. economy may rebound, though there's a ``serious risk'' this may not happen, the FT cited Nickell as saying.

Also, house prices in Britain fell for a third month in September, Web site Rightmove.com said today, adding to signs of a slowdown in the $6 trillion property market.

The pound fell last week as reports showed retail sales in Europe's second-largest largest economy unexpectedly stagnated in August.

``Sterling is one to sell against the dollar and the euro,'' said Shahab Jalinoos, a currency strategist at ABN Amro Holding NV in London. ``What we're seeing in the U.K. is denial that growth in the economy is slowing quite sharply. When that denial ends we should see the pound drop.''

The minutes are for the meeting on Sept. 8, when the BOE left lending rates at 4.5 percent. At the August meeting, Governor Mervyn King was in the minority, the first time the governor has been outvoted since the central bank gained its independence in 1997. The minutes are released on Sept. 21.

Weak Sales

A government report last week showed U.K. retail sales unexpectedly stalled in August. Economists forecast a gain of 0.3 percent after a 0.6 percent drop the previous month.

``The retail sales figures were particularly negative for sterling,'' said Adrian Foster, chief currencies strategist at Dresdner Kleinwort Wasserstein in London. ``There has been a more persistent slowing than expected.''

Foster said the pound may fall to $1.7820 by early October.

Interest-rate futures show traders have pared back expectations for lower rates later this year.

The yield on the December three-month interest-rate futures contract was at 4.49 percent today, up from a low of 4.2 percent this year on July 7, the date the capital was attacked by suicide bombers. The futures settle to the London interbank offered rate, a 90-day lending benchmark that has averaged 15 basis points above the central bank rate for the past 10 years.

To contact the reporter on this story: Kabir Chibber rdavies13@bloomberg.net

Last Updated: September 19, 2005 04:13 EDT