BoE's Carney says sterling should settle over time

BELFAST (Reuters) - The recent strength of the British pound reflects the relative strength of the economy and should settle over time, Bank of England Governor Mark Carney was quoted as saying in an interview on Saturday.

With Britain's economy steadily improving, the pound has moved over the past few months on expectations regarding when the bank might deliver a first, potentially small, rise in interest rates.

In an interview with the Belfast Telegraph newspaper, Carney reiterated that the Bank of England intends to hike interest rates in a "limited and gradual" manner from the current record low 0.5 percent.

"The recent strength of sterling reflects the relative strength of economy. The issue for business is to continue for the plans they have put in place to build the productivity and the currency should settle over time," Carney said.

Economists polled by Reuters expect the first interest rate hike to come in the first quarter of 2015, while financial markets currently price it at around the turn of the year.

Carney last week pushed back slightly against expectations that the bank will raise interest rates before the end of the year, saying Britain's economy still has plenty of slack to work through.

Asked when interest rates will go up in the interview published on Saturday, Carney replied "We don't know".

"Because of the variety of big forces that are acting on our economy, the exact timing of the start of that process will be determined by the evolution of the economy," he added.

"I'm focused on achieving our objectives... With the Monetary Policy Committee, that's making sure that inflation gets to target in a way that's consistent with a durable expansion."

On Thursday the BoE moved to stem increasing levels of debt and rapidly rising house prices by announcing curbs on mortgage lending, imposing its first limits on how much people can borrow to buy a home.

(Writing by Padraic Halpin in Dublin; editing by Jason Neely)