Shares put on pounds 11bn as pound takes a beating in New York and Toky o

Shares in London gained nearly pounds 11bn in value yesterday as the pound dived on the foreign exchanges. Expectations that interest rates will not have to increase until after the election battered the currency but took the FTSE 100 index to a record for the second day running.

But a survey showing service industries booming in the final quarter of last year as manufacturing struggled under the burden of the strong currency emphasised the dilemma over whether or not the Chancellor should raise interest rates.

The British Chambers of Commerce, like the CBI earlier this week, urged Mr Clarke against this. Commenting on its quarterly survey of business, the BCC deputy director general, Ian Peters, said: "It is important for the performance of manufacturers, and particularly the larger ones, that we don't risk snuffing out the manufacturing recovery by increasing interest rates at this stage."

The pound fell sharply in New York and Tokyo overnight before settling during yesterday's trading in London. The finger of suspicion pointed at hedge funds run by speculators such as George Soros.

A spokesman for Mr Soros said his fund never commented on its investment policies, but traders said there had been widespread sales of sterling by big investors to take profits after the currency's strong gains.

Paul Meggyesi, an analyst at Deutsche Morgan Grenfell, said: "Sterling corrections, when they happen, are short and nasty. Once the dam breaks, the flows are huge."

The sterling index against other currencies closed 1.4 points lower at 95.8 yesterday. The pound lost nearly 5 pfennigs, falling to DM2.6685, and declined more than two cents to $1.6278. It closed half-a-cent lower at $1.6313 in New York. The FTSE 100 index gained more than 52 points to close at 4,271.5, aided by a buoyant start on Wall Street - although the Dow Jones Industrial Average finally ended down 94 at 6,755 - as the financial markets stuck to their assessment that Mr Clarke can avoid having to increase the cost of borrowing.

Big exporters were among the best performers as they stand to gain most from the drop in sterling.

Explaining his decision earlier this month to leave rates unchanged in the face of the Bank's advice, the Chancellor dwelt on the strong pound's impact on industry.

But analysts did not yet expect the setback to sterling to weaken the Chancellor's resistance to Bank of England advice in favour of higher base rates, although the Treasury had no comment. As one official remarked: "We don't talk about the pound on the way up, and we don't talk about it on the way down."

A survey of more than 8,600 companies showed that manufacturing orders fell in the final quarter of 1996 and output growth stalled. Although reported business confidence in the sector increased, firms reported planned cuts in investment and employment.

"The strong pound is becoming a serious issue for manufacturers," Mr Peters said. Of the big companies taking part in the survey, 95 per cent said the rise in sterling - of about 8 per cent between the summer and the end of last year - was hindering their business. The pound had climbed as much again between the new year and the start of this week.

On the other hand, the indicators for the service sector were at the highest since the survey began in 1989. Confidence, home and export orders, employment and investment all increased. Most significant in terms of inflationary pressures, service companies reported increased recruitment difficulties and expressed concern about rising pay awards.

"There are clear signs the service sector is overheating," said David Mackie, UK economist at investment bank JP Morgan. "This highlights the dilemma about interest rates.You can come out with whatever policy prescription you want to."

Following a series of weaker-than-expected economic statistics since the new year, many financial analysts had revised their view that strong growth would force Mr Clarke to follow up October's quarter-point rise in base rates with a second increase. The pound lost ground to the dollar as a result, but its exchange rate against other currencies did not catch up until yesterday.

"This was a fall waiting to happen," said Chris Turner, currency analyst at BZW.

Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
David Moyes and Louis van Gaal
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
Arts and Entertainment
Worldwide ticket sales for The Lion King musical surpassed $6.2bn ($3.8bn) this summer
tvMusical is biggest grossing show or film in history
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
food + drink
Rob Merrick's Lobby Journalists were playing Ed Balls' Labour Party MPs. The match is an annual event which takes place ahead of the opening of the party conference
newsRob Merrick insistes 'Ed will be hurting much more than me'
A cabin crew member photographed the devastation after one flight
Life and Style
Carol O'Brien, whose son Rob suffered many years of depression
healthOne mother's story of how London charity Maytree helped her son with his depression
Life and Style
The Google Doodle celebrating the start of the first day of autumn, 2014.
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 / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits