The pound rallied to an almost three-week high against the dollar and gilts fell as minutes of the Bank of England’s meeting this month showed a third policy maker voted to raise interest rates to curb inflation. Sterling extended its advance this year against a basket of nine developed-market peers to 3.2 percent as measured by Bloomberg Correlation-Weighted Currency Indexes, and traders increased bets that borrowing costs will climb. Central bank policy maker Spencer Dale joined Andrew Sentance and Martin Weale in voting to boost rates, according to the minutes of the Feb. 10 meeting published today in London. “This growing momentum in the BOE in favor of higher rates is supporting” the pound versus the dollar, said Elizabeth Gregory, a Geneva-based market strategist at ACM Advanced Currency Markets, which handles about $150 billion of currency trades a month. “That trend could continue for the next six months to a year.” The pound appreciated as much as 0.9 percent to $1.6274, the highest since Feb. 3, before trading 0.6 percent stronger at $1.6227 as of 1:57 p.m. in London. The U.K. currency was little changed at 84.62 pence per euro. Calls to lift borrowing costs for the first time since July 2007 are intensifying as inflation remained above the central bank’s 2 percent target for more than a year. Consumer-price growth accelerated to 4 percent last month, a Feb. 15 report showed. Dale and Weale voted for a 25 basis-point increase in the main rate, from a record low 0.5 percent, while Sentance voted for 50 basis points, today’s minutes showed. Hawkishness Increasing “People weren’t really expecting Sentance be so aggressive,” Gregory said. Of the five members of the Monetary Policy Committee that voted for no increase in the benchmark rate “some thought that the case for an increase had nevertheless grown in strength,” according to the minutes. Governor Mervyn King said at a press conference last week that market expectations of higher borrowing costs were overdone. Two-year notes fell for a second day, lifting yields by four basis points to 1.54 percent after reaching 1.56 percent, the highest in more than a week. The 4.5 percent security due March 2013 fell 0.1, or 1 pound per 1,000-pound face amount, to 105.90. Ten-year yields, typically less sensitive to short-term interest-rate expectations, gained one basis point to 3.69 percent. Short Sterling Gilts have declined this year amid mounting speculation that rates will increase. U.K. debt lost investors 1.6 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The German bond index fell 1.2 percent, with the U.S. Treasuries measure falling 0.4 percent. Money markets signal policy makers will probably raise the key rate by about 75 basis points by year-end, according to the sterling overnight index average, Tullett Prebon Plc data show. The so-called Sonia rate indicates an increase of about 25 basis points in May, another quarter point by August and a third by November. The implied yield on the December short-sterling futures contract jumped five basis points to 1.78 percent. It rose to 1.82 percent, the highest this year, as traders added to bets that U.K. borrowing costs will rise. The yield was 1.25 percent at the end of last year. To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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