Sterling hit around 1.12 against the eurozone currency, as markets digested the interest rate decision and update from the Bank of England.
The pound tends to strengthen when the chance of an interest rate increase is higher.
Despite soaring inflation and low unemployment, only two of the nine MPC members voted for an immediate base rate hike from 0.25 per cent to 0.5 per cent.
However, the MPC today said that "some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target"
Bank of England chief economist Andy Haldane held off voting for a hike, with only Michael Saunders and Ian McCafferty calling for rates to rise.
Some experts had thought that Governor Mark Carney could shock markets after last month warning that markets are underestimating the likelihood of a rate rise - however, the chief voted for a hold this time round.
Maike Currie, investment director for personal investing at Fidelity International, said: “It’s now almost a decade since the Bank of England first took the knife to rates and despite talk about a rate hike being around the corner, it comes as little surprise that the Bank of England’s Monetary Policy Committee (MPC) is still in no rush to raise rates from their historic lows, with a majority 7-2 members voting to hold rates at 0.25 per cent."So despite hawkish sounds from policymakers at the Old Lady of Threadneedle Street, it’s still the doves that rule the roost."
GETTYThe pound increased against the euro ahead of the MPC interest rate update
BloombergThe pound soared against the euro after the interest rate update
BloombergThe pound is at a one-month high against the euro
However, the chance of a rate hike appears to have jumped after the MPC minutes showed that committee members felt that rates will rise sooner than the market expect.
A statement from the MPC said: "All MPC members continue to judge that, if the economy follows a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations."
It comes after inflation hit 2.9 per cent in August - well above the Bank's target of two per cent.
Raising interest rates can help push inflation down - taking pressure off British households.
Unemployment has also reached a 42-year low, suggesting the economy remains strong - and wage rises may soon start to pick up.
The factors all suggest the Bank of England could now be finally ending the decade of record low interest rates, according to experts.
Kathleen Brooks, research director at City Index, said: "If the Bank of England won’t step in to ease the pressure on the consumer now, then when will it?"Ben Brettell, senior economist at Hargreaves Lansdown, said: "As we have come to expect from the Bank of England, the no-change decision was delivered alongside some hawkish rhetoric in the meeting minutes."The majority of members feel a withdrawal of stimulus will be appropriate in the coming months, as slack in the economy is being absorbed more rapidly than expected.
"Sterling gained almost a cent against the dollar on these comments, while the FTSE shed around 30 points.
"Yet this isn’t anything we haven’t heard before from the Bank.
"Policymakers have continually warned rates may have to rise sooner than the market expects, while at the same time doggedly sitting on their hands."