By Paul Dobson Nov. 17 (Bloomberg) -- The pound strengthened to a two- month high against the euro after Bank of England policy maker Andrew Sentance said Britain is returning to growth and risks stoking inflation if it keeps stimulus measures in place for too long. The pound extended gains after the Office for National Statistics said inflation accelerated for the first time in eight months. Sentance said in a speech yesterday that business and consumer surveys and unemployment data suggest the U.K.’s economy is expanding. The Bank of England will release tomorrow the minutes of this month’s meeting, when policy makers expanded their asset-buying program by 25 billion pounds ($42 billion). The Sentance speech “added to the positive bias in sterling,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “The data generally has been very strong.” The pound rose as much as 0.6 percent to 88.49 pence per euro, trading at its strongest level since Sept. 15, and was last at 88.76 pence as of 11:15 a.m. in London. It slid 0.1 percent against the dollar to $1.6794 after trading at $1.6878 yesterday, the highest level since Aug. 6. “We are hopefully now moving from the role of fire- fighters in the recession to a more familiar role -- steering the economy through an upswing underpinned by low inflation,” Sentance said in his speech. Stimulus Measures Sentance said in a separate interview with Bloomberg Television that it’s not yet time to consider reining in emergency- stimulus measures, and that policy makers “have to be open-minded” about extending their asset-buying program. “Most Bank of England policy makers are trying to keep open the possibility of more quantitative easing, but they’re going to start toning that down and that’s supported sterling,” said Geoffrey Yu, a currency strategist at UBS AG in London. British consumer prices rose 1.5 percent in October from a year earlier, compared with 1.1 percent the previous month, according to the statistics office. That’s more than the 1.4 percent median forecast in a Bloomberg survey of 30 economists. U.K. government bonds rose, pushing the yield on the 10- year gilt 2 basis points lower to 3.73 percent, after it earlier fell to 3.71 percent, the lowest level since Nov. 3. The yield on the two-year security also fell 2 basis points to 1.32 percent. U.S. Federal Reserve Chairman Ben S. Bernanke said yesterday economic “headwinds” of reduced bank lending and a weak labor market may restrain economic recovery and justify prolonged record-low borrowing costs. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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