Norman Lamont's firm stand on base rates came despite mounting G7 optimism that the German Bundesbank was on the verge of reducing its own key rates.
The Chancellor delivered a blunt defence of his anti-inflation strategy to Saturday's meeting of G7 ministers. G7 sources said he did not entirely place a floor under British rates, but made it plain there would be no further cuts for several months.
In public, Mr Lamont said: 'I made it clear to the meeting that I do not envisage cutting interest rates at present.'
The Chancellor's comments were coupled with a hint that he was leaning towards a tight Budget on 16 March, and appeared designed to set a floor under the falling pound. G7 sources said Mr Lamont faced international concern during the talks at the size of Britain's public borrowing. He admitted to other finance ministers that something would have to be done about the explosive growth of the deficit.
However, sterling may also be helped by the revelation that the Chancellor is set to announce in the Budget a lower-than- expected public sector borrowing requirement this financial year and next.
Currency analysts said yesterday that the prospect of an early fall in German rates - which would set off a wave of reductions across Europe - and Mr Lamont's firm line on British rates should underpin the pound in trading this week. Helmut Schlesinger, the Bundesbank president, did nothing to discourage growing expectations of a reduction.
Senior G7 officials said the Chancellor repeatedly stressed he would not abandon his anti-inflation strategy. 'I believe rates are now at the appropriate level and are consistent with economic recovery. Further cuts in interest rates are not in my mind.'
There was general agreement that Britain had the best growth prospects in Europe, where most countries face a deepening downturn.
Though preliminary Treasury forecasts point to a PSBR well below the pounds 37bn predicted in last year's Autumn Statement, the Chancellor appeared sympathetic to the view that he should not wait until November to rein in the borrowing total.
Like other ministers, he praised President Bill Clinton's deficit reduction plan. While it was right to permit the deficit to swell during recession, 'at the end of the day countries have to have regard to
the overall long-term fiscal position'.
New City research by James Capel and Kleinwort Benson appears to lend weight to the preliminary Treasury view that the PSBR this financial year and next may be lower than forecast. Economists at James Capel think there is an outside chance it could be as low as pounds 30bn.
Better-than-expected local authority finances and expectations of a pick-up in corporation tax receipts are the main reason for the optimism, although most City forecasters fear a borrowing total of pounds 50bn or more.
On the global stage, finance ministers agreed on Saturday to relaunch international co-ordination of their economic policies amid concern over the relentless climb in unemployment.
The US, which has emerged decisively from recession, pleaded at the meeting in London for assistance in reviving the world economy. Alongside hopes of lower German rates, Japan reassured its partners it was piloting a fiscal stimulus package through parliament. But on returning to Tokyo, Japanese officials claimed they had come under no pressure to produce a fresh boost to public spending.
However, senior G7 sources said the Japanese were pressed firmly to expand public spending and boost depressed domestic demand.
Lloyd Bentsen, the new US Treasury Secretary, said the US plan to cut its budget deficit and ease the drain on world savings was laying the basis for a strong world recovery. But he added: 'We alone cannot guarantee prosperity for the world. If we work together we'll prosper together.'
Although no new measures were agreed during the talks, Mr Bentsen hinted at co- operative decisions to boost world growth this year. 'We have a commitment to restoring a G7 process which is credible and which produces substantive results.'Reuse content