Pound slips again after strong start
Tuesday 08 September 1992
The pound slipped closer to its floor in the exchange rate mechanism, but pressure eased on the embattled Italian lira.
Unexpectedly strong growth in July consumer borrowing did little to help sterling in quiet trading. Analysts said the figures probably reflected a blip in car sales and the rush to beat the reimposition of stamp duty on house purchases rather than a revival in high street spending.
The pound started the day strongly, rising above DM2.8050 by mid-morning. Relief that the Bath meeting had not agreed an ERM realignment prompted profit-taking on the mark. But the pound fell back during the afternoon to close 0.57 pfennigs lower on the day at DM2.7968.
The City concluded that the Bath meeting had revealed no significant change in German interest rate policy. The Bundesbank said on Saturday that it saw no reason to raise interest rates 'in the present circumstances'. Mr Lamont claimed it was the first time this had been said 'openly and publicly'.
The Bundesbank was content for Mr Lamont to interpret its statement in this way as a means to calm the market. But the statement added nothing to what Helmut Schlesinger, the Bundesbank president, said after Thursday's council meeting, which decided to leave rates unchanged.
The Bundesbank remains ready to raise rates if money supply growth or inflation accelerates unacceptably.
'The Bath statement was played up for all it was worth,' George Magnus, of Warburg Securities, said. 'The markets are looking less optimistic at the end of the day than they were at the beginning.' He added that market gloom had been lifted in recent days as a 'yes' vote looked more likely in the French referendum on the Maastricht treaty.
With the US markets closed for the Labor Day holiday, trading in the dollar was subdued. It fell by 0.15 pfennigs to DM1.4030 while the pound gained 0.3 cents to dollars 1.9935. 'The dollar normally rises on a US holiday, so that is a little disconcerting,' Steve Barrow of Chemical Bank said.
Economists speculated that the Federal Reserve could still cut US interest rates ahead of November's presidential election in an attempt to boost the recovery.
There was little evidence of a recovery in Britain in July's consumer credit figures, released yesterday by the Central Statistical Office. Ian Shepherdson, economist at Midland Montagu, said the figures were 'mildly encouraging', but were boosted by special factors.
Consumers took on a net pounds 78m of new debt in July, having repaid pounds 55m a month earlier. The CSO projected that lenders also wrote off pounds 82m of consumer debt in the month. Some pounds 4.25bn of new credit was advanced in the month, the highest figure for a year. The swing to net borrowing was almost entirely the result of greater borrowing from finance houses.
The number of houses started in Britain between May and July was 3 per cent lower than in the previous three months, but private sector starts were 1 per cent higher, the Department of the Environment said.
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