CBI says it can live with higher pound as euro falls below $0.83

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The Independent Online

BRITAIN'S LARGEST employers' organisation yesterday confirmed plans to raise the exchange rate at which it believes the UK could sustainably join the euro. The news came as the single currency plunged to a new lifetime low below $0.83 against the US dollar.

BRITAIN'S LARGEST employers' organisation yesterday confirmed plans to raise the exchange rate at which it believes the UK could sustainably join the euro. The news came as the single currency plunged to a new lifetime low below $0.83 against the US dollar.

As The Independent reported in August, the Confederation of British Industry believes business can cope with an exchange rate close to 3 German marks - equivalent to 65p to the euro.

Kate Barker, the CBI's chief economic adviser, said it would carry out a survey of its members at an "appropriate time" after the next General Election

Earlier this year the organisation gave an official view of between DM2.65 and DM2.70 - the equivalent of 73.9p to 72.4p against the euro - based on a survey of its members.

Yesterday Nick Reilly, chairman of the CBI's economic affairs committee, said there had been a "good debate" between the senior figures within the organisation.

"There is still a significant range from DM2.65 to DM3 but there are more people who would be looking nearer to DM3 than a year ago. These things do move on," he said.

But Mr Reilly insisted the current exchange rate was "way off the map". Yesterday the euro hovered just below 58p, close to a five-month high and equivalent to DM3.37.

The CBI's policy review came amid further evidence UK manufacturers were weathering the impact of the pound's exchange rate against the euro - the currency of its main trading partners.

Its quarterly industrial trends survey showed businesses expected total orders to rise over the next four months compared with a forecast of a fall in the July survey.

Export orders were forecast to fall over the next four months but at the slowest rate this year. One of the key factors was a fall in export prices as a likely constraint on future export orders to its lowest level for three years.

Mr Reilly said that he was "puzzled" by the fall, adding that it might reflect optimism the pound would come its current unsustainable highs.On Tuesday, official figures showed that the UK moved into a trade surplus with the European Union in August for the first time in five years. The performance was driven by a 3 per cent rise in UK exports, thanks to strong economic growth across Europe.

But Mr Reilly denied suggestions gloom among manufacturers had bottomed out, pointing out that business confidence had fallen for the third month in a row.

Meanwhile, the euro plunged to a fresh lifetime low against the dollar, hitting $0.8290 as hopes faded that central banks of the major economies would intervene to prop up the beleaguered currency.

Nick Stamenkovic, senior European strategist at Nomura International, said the markets had reacted to the failure of the meeting of finance ministers and central bankers of the G20 nations to produce any hint of intervention. "The euro is in a very sorry state and $0.80 looks like a distinct possibility," he said.

The euro was also undermined by a surge in German import price inflation to 13.4 per cent, its highest for 19 years.

The main factor was the recent rise in the oil price. Yesterday Brent crude rose as high as $32.15 a barrel after a reported fall in US heating fuel stockpiles underlined fears of a winter supply shock.

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