London, October 31:

British businesses are bracing themselves for rising costs and tougher export markets after the pound reached a new 26-year high yesterday. The rise in the value of sterling comes as oil prices surge above $91 abarrel.

As sterling strengthened to $2.0694, manufacturing groups flagged up the compounding effects of high oil prices and signs of trouble in many of the world’s economies.

The latest rise in the pound against the dollar followed comments from Kate Barker, a Bank of England policymaker, who poured more cold water on expectations of an interest rate cut in Britain in the near future.

At the same time, the dollar was hit by weak US data, which cemented expectations that the Federal Reserve would cut interest rates there later today.

Britain’s hotels, shops and restaurants, which rely on big-spending visitors from the US, are finding the high pound is putting off potential customers. For UK exporters, sterling’s strength is making their waresharder to sell.

Stephen Radley, chief economist at the EEF manufacturing group, said many of its members had now hedged against big currency movements. “Until recently being strong against the dollar has made life more difficult for manufacturers but they have at least been able to enjoy strong growthin export markets,” he said.

“Now there are more worries about the strength of the world economyand we would expect to see more companies getting concerned about the pound’s value against the dollar.”

The CBI business lobby group points out that only a small portion of UK exports go to the US. At the same time, a strong pound means UK companies can end up paying less for metals and oil.