Pound still falling as political worries mount

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The Independent Online
THE POUND yesterday tumbled to yet another fresh low amid mounting apprehension over the Government's troubles on Maastricht and persistent worries over weak political leadership in Britain.

According to Bank of England figures, sterling finished at a record low of DM2.3213 against the mark, a fall of 3.5 pfennigs. Against a basket of trade- weighted currencies it closed at 76 per cent of its 1985 value, matching the all-time closing low of 11 February.

During the day sterling sank briefly below DM2.32 amid widespread speculation that it could collapse further against the mark in the weeks ahead, especially if UK interest rates are cut again.

Selling began in the Far East and picked up later in the day after the mark briefly strengthened against other currencies in the European exchange rate mechanism.

Despite figures from two German states pointing to an overall German inflation rate decisively above 4 per cent in February, economists persisted in predicting the Bundesbank would again cut its official rates in March or April.

But George Magnus, chief international economist of Warburg Securities, said: 'The markets have concluded, 'So what if the Bundesbank cuts its rates?'. They would have to cut them dramatically to have an impact on other ERM economies, and I can't see them capitulating to European needs.'

Fresh evidence of the damaging impact of high interest rates on the French economy emerged yesterday. French national output contracted by 0.5 per cent in the fourth quarter of last year, the steepest downturn since the first quarter of 1987. Other French figures disclosed a 30.8 per cent slump in housing starts and a sharp fall in car production.

The figures added to worries that the French economy is heading for outright recession this year.

Yesterday, however, pressure on ERM currencies was relieved by speculative attacks on the pound and the Italian lira. From a Friday close of 958 per mark the lira finished yesterday around 973.75, about eight lire weaker on the day.

Sterling also lost ground against the dollar, ending nearly two cents lower at dollars 1.4360.

Recent downward pressure on the dollar abated yesterday after Lloyd Bentsen, the US Treasury Secretary, said the Saturday meeting of the Group of Seven finance ministers would simply be a 'get acquainted' session with no communique. His remarks calmed fears that the G7 would call for a further rise in the yen.

As a result the dollar ended little changed on the day. A 1.7 per cent fall in orders for US durable goods was less than expected and followed an upward revised December increase of 9.1 per cent.