Pound exposed by rates surprise

THE pound and French franc are expected to come under pressure when the foreign exchange markets re-open in Asia at midnight, in the wake of today's French presidential election and Friday's decision by the Chancellor of the Exchequer, Kenneth Clarke, to leave interest rates unchanged.

Mr Clarke's comments on this morning's Frost on Sunday BBC television programme will be carefully analysed for an explanation of his interest- rate decision, despite rising raw material costs, an already weak pound and surging money market rates.

The suspicion is gaining ground that Mr Clarke is preparing to relax the chains that have been holding inflation back, which would imply a potentially damaging disagreement with Eddie George, the Governor of the Bank of England.

Said one dealer: "Clarke has some explaining to do. If sterling continues to fall this week, he is going to look pretty stupid if he has to shore it up with an increase in base rate by Friday."

Sterling will share the spotlight this week with the French franc, as markets react to the result of the French presidential election. If Jacques Chirac should be defeated today by the Socialist candidate, Lionel Jospin, the franc would go into free-fall.

Speculation surrounding the two European currencies should take some of the heat off the US dollar, which has been pulling the pound down with it.

Pressure for a further rise in UK base rates has been generated by the currency and bond markets and is unlikely to disappear quickly. Headline inflation, including mortgage interest, has edged up in the past few months to 3.5 per cent and the underlying rate has reached 2.8 per cent, mainly because of the rise in commodity prices and the decline in the value of the pound against the mark, yen and Swiss franc.

Some economists argue that the case for a rise in rates to control domestic demand was weak and has weakened further since the last increase three months ago, as the growth of output and consumption has visibly decelerated.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Admin Assistant

£12000 - £15000 per annum: Recruitment Genius: An expanding Insurance Brokerag...

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders