Rate cut hopes send pound to new low

HOPES in the City that Norman Lamont, the Chancellor, will cut interest rates before Thursday's emergency debate on the economy pushed the pound to a fresh all-time low against the German mark yesterday and gave the stock market a short-lived boost.

The pound dropped decisively below DM2.60 on Sunday night as it became clear that French voters had narrowly backed the Maastricht treaty. The currency continued to drift lower yesterday on the belief that Britain would remain outside the exchange rate mechanism for some time and that this would give the Government scope to cut rates.

The pound closed yesterday at DM2.5376, down 7.31 pfennigs from Friday's close. In part this reflected residual selling pressure from last week, the effect of which had been delayed by profit-taking.

Sterling is now more than 24 pfennigs below its former ERM floor and has in effect been devalued by almost 14 per cent from its old central rate of DM2.95.

The pound also dropped by three cents against the dollar to dollars 1.7130. Against a trade-weighted index of other currencies the pound ended the day worth 83.6 per cent of its 1985 value, down 1.9 percentage points on the day. This is 8 per cent below last Tuesday's close and the devaluation.

The dollar dropped by just over a cent against the mark to DM1.4860 as the US currency lost some of its status as a 'safe haven' from European turmoil.

The ERM remained tense. The Banque de France was reported to be support-buying the franc during the morning. The French currency closed at Fr3.4213 per mark, less than a centime above its floor of Fr3.4305. The Danish krone and Irish punt remained under pressure while the Portuguese escudo was only supported at the top of the system by high overnight interest rates.

Belgium and the Netherlands reduced their interest rates slightly in response to the flow of investors' funds into currencies closely linked to the mark.

Hopes of an interest rate cut in Britain took hold in the money markets. The three-month inter-bank interest rate - which tracks City base rate expectations - fell by more than half a percentage point from Friday's close to 9 3/8 per cent. This discounts at least a half-point cut in base rates from their current 10 per cent.

'I think there is a very good chance of a rate cut this week,' said David Simmonds, economist at Midland Montagu. He added that the Chancellor was likely to time any cuts with Thursday's Commons debate and next month's Conservative Party conference in mind.

City economists believe interest rates may be as low as 8 per cent by the end of the year.

The stock market began the day strongly on hopes of an interest rate cut. By mid-morning the FT-SE index of 100 leading London shares was 44.2 points higher than Friday's close.

But profit-taking and doubts about the size and timing of a rate cut put the market into reverse. At the end of a heavy day's trading the index closed 6.9 points down at 2,560.1.

Hopes of British base rate cut came as a new survey was published showing that employers are becoming more gloomy about the outlook for jobs, with a growing number of companies forecasting staff cuts in the next three months.

The latest report from the employment agency Manpower shows that a balance of 1 per cent of employers expects to make job cuts in the last quarter of the year. In its previous quarterly survey a balance of 6 per cent said they expected to take on more staff.

Job losses will be heaviest in banking, local government and the construction, energy and water industries, Manpower said.

However, retailers, clothing manufacturers, insurers and companies involved in hotel and catering and transport and distribution expect to recruit more staff.

Regionally, the outlook is bleakest in the North-west, East Anglia, the Home Counties, the South and West Midlands.

But a balance of employers in the North-east, South Wales, Scotland, the West, the East Midlands and Yorkshire and Humberside expect to take on more staff.

According to the Manpower survey of 2,000 employers, 18 per cent expect to cut jobs, 17 per cent expect to increase staffing and 63 per cent forecast no change.

(Photograph omitted)

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
PROMOTED VIDEO
Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

News
ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Travel
travelWhy Japan's love hotels are thriving through an economic downturn
Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Life and Style
Alexander McQueen A/W 2014
fashionPolitics aside, tartan is on-trend again this season
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Rapper Jay Z performs on the Pyramid Stage at Glastonbury in 2008
musicSinger sued over use of the single-syllable sample in 'Run This Town'
Sport
Joel jumps over the board...and into a giant hole
footballFrom joy to despair in a matter of seconds
News
i100
Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

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

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Audit Manager Central Functions

To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

Credit Risk Audit Manager

Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week