Pound sinks on renewed rate fears

THE POUND slipped to a 27- month low against the mark yesterday as dealers turned their attention back from the dollar to Britain's economic difficulties, the fate of the Maastricht treaty and fears of still-higher German interest rates.

Sterling ended the day 0.42 pfennigs lower at DM2.8240. It was not helped by rumours that Norman Lamont, the Chancellor of the Exchequer, had resigned. These were formally denied by the Treasury and dismissed by most analysts as a typical August stunt by someone looking to buy the pound cheaply.

But Glenn Davies, economist at Credit Lyonnais, said the rumours reflected widespread market fears that something had to give in the Government's economic strategy. The rumours helped depress share prices, with the FT-SE index of 100 leading shares closing 6.5 points lower at 2,303.1.

The pound was also weakened by the Confederation of British Industry's Regional Trends Survey, but received some support from fear of central bank intervention.

Intervention fears, following Tuesday's concerted bid to defend the currency by 15 central banks, limited the dollar's fall. The US currency closed 0.73 pfennigs lower at DM1.4657.

US producer price figures for July had little impact. Factory gate prices rose 0.1 per cent, adjusting for seasonal changes. This was half June's rise and in line with Wall Street forecasts.

Producer prices have risen 1.7 per cent in the year to July, and at an annualised rate of 1.8 per cent so far this year.

Excluding food and energy, the rise on the month was in line with forecasts of a seasonally adjusted 0.2 per cent, giving a 2.5 per cent increase over a year.