Pound suffers a fresh battering but shares soar

The pound was battered down to its lowest level for more than a month on the foreign exchange markets yesterday.

But the stock market took heart from the exchange rate weakness, with the FTSE 100 index ending more than 47 points higher at a record 4,275.8.

Sterling's index against a range of currencies closed 0.8 points lower at 94.4. It has lost more than two pfennigs against the German mark in 24 hours.

Dealers blamed the pound's renewed decline on a combination of expectations that Kenneth Clarke, Chancellor of the Exchequer, will not raise base rates after the monthly monetary meeting on Wednesday and fears that the Federal Reserve might increase US rates after its Open Market Committee meets on Tuesday and Wednesday. These were fuelled by figures yesterday showing that the American economy grew at a steamy pace in the final quarter of last year.

"The pound's higher level was buoyed by speculative inflows. That hot money is now going elsewhere," said Paul Lambert, a currency analyst at the investment bank UBS. He added that the Toyota president Hiroshi Okuda's warning earlier this week about future investment in Britain if the pound stayed out of the single currency had also led to sales of the pound for yen.

The paradox in sterling's very recent weakness is that if it goes much further it will deprive the Chancellor of his best excuse for not taking Bank of England advice to increase the cost of borrowing. The Bank's Governor, Eddie George, has become increasingly forthright in saying this is needed if inflation is to hit the Government's 2.5 per cent target.

The sterling index ended yesterday less than 4 per cent above its level when the Bank drew up its last quarterly Inflation Report, when it started arguing for rates to go up. The next report is due on 12 February.

David Coleman, chief economist at CIBC Wood Gundy in London, warned that Mr Clarke's resistance might suit his electoral needs but held dangers for sterling. "Once the market thinks Clarke is behind the game, the game is up," he said.

Figures yesterday showed America's GDP growth rebounded in the final quarter of last year. This tilted Wall Street analysts towards the view that Alan Greenspan, Fed Chairman, will favour a tighter interest rate policy, even though most believe an erratically strong trade performance boosted the economy at the end of last year.

The US economy expanded at an annual rate of 4.7 per cent in the fourth quarter of 1996, a much faster pace than economists had expected. Consumer spending picked up strongly. In addition, exports surged while growth in imports slowed down.

More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete tomorrow
people'I’d rather have Fred and Rose West quote my characters on childcare'
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Kim Jong Un gives field guidance during his inspection of the Korean People's Army (KPA) Naval Unit 167
newsSouth Korean reports suggest rumours of a coup were unfounded
Arts and Entertainment
You could be in the Glastonbury crowd next summer if you follow our tips for bagging tickets this week
footballSporting Lisbon take on Chelsea as Manchester City host Roma
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Mystery man: Ben Affleck and Rosamund Pike in '‘Gone Girl'
businessForbes 400 list released
Arts and Entertainment
Kylie performs during her Kiss Me Once tour
musicReview: 26 years on from her first single, the pop princess tries just a bit too hard at London's O2
peopleSwimmer also charged with crossing double land lines and excessive speeding
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?
Royal Ballet star dubbed 'Charlize Theron in pointe shoes' takes on Manon

Homegrown ballerina is on the rise

Royal Ballet star Melissa Hamilton is about to tackle the role of Manon
Education, eduction, education? Our growing fascination with what really goes on in school

Education, education, education

TV documentaries filmed in classrooms are now a genre in their own right
It’s reasonable to negotiate with the likes of Isis, so why don’t we do it and save lives?

It’s perfectly reasonable to negotiate with villains like Isis

So why don’t we do it and save some lives?
This man just ran a marathon in under 2 hours 3 minutes. Is a 2-hour race in sight?

Is a sub-2-hour race now within sight?

Dennis Kimetto breaks marathon record
We shall not be moved, say Stratford's single parents fighting eviction

Inside the E15 'occupation'

We shall not be moved, say Stratford single parents
Air strikes alone will fail to stop Isis

Air strikes alone will fail to stop Isis

Talks between all touched by the crisis in Syria and Iraq can achieve as much as the Tornadoes, says Patrick Cockburn
Nadhim Zahawi: From a refugee on welfare to the heart of No 10

Nadhim Zahawi: From a refugee on welfare to the heart of No 10

The Tory MP speaks for the first time about the devastating effect of his father's bankruptcy