City: Axe hangs over boxed-in Lamont

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THUS far at least, Norman Lamont has managed to ride out the storm, but there is little confidence in the markets that he'll be able to do so for much longer. The immediate threat of an interest rate rise to shore up the pound has receded. If you look at the futures market and listen to what the stock market is saying, however, there's not much doubt that eventually rates will rise - maybe not this week, maybe not next, but some time soon. Sterling is overvalued in the ERM; either it has to be devalued to reflect this reality or interest rates will have to rise to make it more attractive. That's what the markets think anyway.

When Jim Callaghan was Chancellor, the strain of the job nearly drove him to a nervous breakdown; it's the most high-pressure post in politics - worse than being prime minister. If the economy goes wrong, you get the blame and become the fall guy. As Mr Lamont stood on the steps of the Treasury last Wednesday to insist that he would do whatever was necessary to defend the pound, he must have been only too well aware of his likely fate. Ten days of holidaying in Tuscany appeared to have been stripped from him within hours of his return. The stress and pressure of another sterling crisis showed only too clearly on his face. Tell them you won't devalue under any circumstances, his advisers had said. That's half the battle. The speculators might believe you and then they'll go away.

But they won't. They have sniffed blood and they'll be back. If Mr Lamont was ever in a position to devalue, he can't do it now, not without resigning. He has boxed himself in. His only option is to raise interest rates and plunge the UK economy from recession into slump. Don't go anywhere near equities. Keep well away.

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