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Sterling soars as concern on euro remains

STERLING climbed yesterday to a fresh two-and-a-half-year high against a basket of currencies, as political uncertainty in the Netherlands and France and worries over Spain's debt weighed on the euro.

However, the weak domestic economic position was highlighted yesterday afternoon when Bank of England Monetary Policy Committee member David Miles told Bloomberg TV that "it wouldn't be a great surprise" if official data today showed a small fall in UK gross domestic product in the opening three months of this year.

UK GDP fell 0.3% in the fourth quarter of 2011. A fall in the first three months of 2012 would mean fears of a double-dip into recession, which is defined as two straight quarters of contraction, had been realised.

The pound rose to 83.3 on its trade-weighted index against a basket of currencies, its highest since August 2009. The euro dropped to an intra-day low of 81.41p – its weakest level against the pound since the summer of 2010 – although it later recovered to 81.86p.

The Netherlands was thrown into turmoil on Monday when its Government tendered its resignation, following an abrupt split with the populist Freedom Party over public spending cuts and eurozone issues. Meanwhile, Socialist Francois Hollande performed strongly in the first round of the French presidential election, highlighting further the chances of a rebellion against Berlin's hard-line emphasis on cutting budget deficits.

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