The value of the pound fell to its lowest since Britain joined the exchange rate mechanism in October 1990. And the FTSE index closed 15.2 points lower at 2,377.6, having traded during the day more than 30 points down, narrowly above its lowest point this year.
Stephen Dorrell, Financial Secretary to the Treasury, defended the government's economic policy, contradicting Sir John's forecast. He told BBC television that manufacturing production figures for the first half of the year showed that, at worst, the recession had bottomed out. BP and Barclays, two of Britain's largest companies, reported after-tax losses for the first half of the year after each setting aside pounds 1bn for the costs of adjusting to recession.
BP, where Bob Horton was recently ousted as chairman, halved its interim dividend and announced losses of pounds 717m after tax for the six months to July. That was after setting aside pounds 472m for redundancy payments and a further pounds 544m for a fall in the value of some of its plants. BP has shed about 2,000 jobs in the UK this year. A further 1,500 staff were told yesterday they were redundant. Payoffs average pounds 41,000.
Barclays, which also made an after-tax loss, set aside more than pounds 1bn to cover bad debts. Sir John said: 'The economy is bumping along the bottom and I expect we could be well into 1993 or even 1994 before there are genuine signs of revival. The feeling we get from our customers and managers around the country is that there is no sign of any upturn.'
Speaking later in the day, Mr Dorrell said there was a danger of 'talking oursleves into a sense of almost terminal gloom,' adding: 'We must not be panicked by short- term problems. We have to keep our eyes clearly on the medium-term objective of a stable monetary background. We need to concentrate on the once-in-a-generation opportunity to put the genie of inflation back into the bottle.'
Robin Cook, Labour's trade and industry spokesman, said: 'The audited accounts of Barclays may be a more accurate guide to our future than the fiddled forecasts of the Treasury, and they are pointing downhill.' Meanwhile, the pound drifted downwards, ending the day 0.18 pfennigs weaker at DM2.8284, about five pfennigs above its ultimate floor in the exchange rate mechanism. The pound avoided serious selling pressure as a slightly stronger dollar limited the impact of fears about the economy and the fate of the planned European single currency.
The Bundesbank left its interest rates unchanged at its fortnightly council meeting, but dealers still fear that German rates may go up in the next few weeks. Fears of higher British mortgage rates also contributed to the mood of nervousness.
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