Pound Rallies, Gilts Slump After BOE Says Inflation to Reach 5%

The pound gained versus the dollar and the euro after the Bank of England said it sees inflation “markedly higher” in the near term, boosting speculation that borrowing costs will rise from record low levels. Gilts slumped.

Sterling advanced versus all but one of its 16 major counterparts, snapping a two-day decline against the shared European currency. “There is a good chance that inflation will reach 5 percent later this year and it is more likely than not to remain above the 2 percent target throughout 2012,” the bank said in its inflation report today. Risks to economic growth are “skewed to the downside,” the report added.