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The pound rose sharply after news that UK producer prices surged to a near 20-year high, sparking concerns that the Bank of England may not effect any more rate reductions this year

At 10.23 am, the pound was at 1.7862 usd from 1.7784 ahead of the data. the euro meanwhile fell to 0.6928 stg from 0.6953

Surging oil prices, as well as higher costs of imported equipment, caused raw material costs to increase by their highest annual rate in more than 20 years in the year to July, official figures showed today

Additionally, there was also evidence that manufacturers have been able to pass on some of these cost increases into their prices, which could raise concerns at the Bank of England about rising inflationary pressures

"With oil prices rising to new nominal highs in early August, this evidence of an increase in underlying inflationary pressures will reinforce belief that the Bank of England is unlikely to cut interest rates again in the near future at least," said Howard Archer at Global Insight

Players reacted to the news by pushing the pound higher as they were forced to scale back rate cut expectations. Last week, the Bank of England delivered its first rate cut in two years due largely to a slowdown in consumer spending, taking the base rate to 4.50 pct from 4.75 pct

Many have been expecting another quarter point cut before the year is out. These predictions have now taken a knock but not entirely diminished

Investec economist David Page pointed out that the central bank is more concerned about the medium-term outlook for inflation and will not be too perturbed by short-term fluctuations

"The Bank of England knows and expects that inflation will be relatively firm in the short term on the back of higher energy prices, but the Bank of England is very much focused on the medium term," he said

As such it will take more strong numbers, particularly from the consumer side, to really end talk of more rate cuts. Against this backdrop, the pound is unlikely to rise too far