Lamont tries to stop pound's fall: Shares soar on hopes of more interest rate cuts - Ireland seeks reform of ERM - Chancellor puts a break on further interest rate cuts - Ireland seeks ERM reform

Norman Lamont tried to stop a sharp fall in sterling with a strong signal yesterday that the Government did not intend to cut interest rates again until next month's Budget at the earliest.

Nevertheless confusion persisted over government policy towards interest rates, despite repeated No 10 denials of a rift between the Prime Minister and Chancellor.

Expectations of fresh cuts around the time of the Budget sent sterling reeling by four pfennigs, to an all-time low of DM2.3550 early yesterday. But the stock market was euphoric - the FT-SE 100 Index at one stage climbed more than 47 points, within reach of its record.

Signalling his resistance to further cuts in interest rates for the month ahead, Mr Lamont said in a statement that more than a million households were already looking forward to an average saving of over pounds 60 on mortgages this month, with borrowers reaping the benefit of annual reviews and a three-point reduction by the Nationwide, Bradford and Bingley, and National and Provincial building societies.

'People whose mortgage payments are reviewed annually have yet to see the benefit of the cuts I made in interest rates in the autumn,' the Chancellor said.

'More people will benefit in the same way in March and April. On top of this, there is the benefit of the interest rate cut I announced last week.'

But many people in the City disbelieved Downing Street's denial that John Major had wrested control of policy from the Treasury, and was planning to authorise two additional cuts in base rates from the current 6 per cent.

By the London close, sterling steadied to end 2 pfennigs down at DM2.3777 and 3.70 US cents down at dollars 1.4540. The FT-SE 100 Index finished 44.4 points higher at 2851.6.

Treasury officials said the Government had 'no further interest rate cuts in mind.' It is believed that a number of senior officials are becoming worried about the inflationary consequences of the falling pound, and have advised against recent cuts in rates.

The prospect of fresh reductions in rates and an even lower pound provoked renewed tension within the EC. Following Saturday's devaluation of the punt, the Irish Republic called for an urgent review of the ERM, a request made by Britain after sterling was forced out last September.

Irritation with Britain's latest interest rate cut coincided with a warning by Helmut Schlesinger, the Bundesbank president, that complaints about high German rates - often cited as the main reason for strains in the exchange rate mechanism - were being overstated.

'Our rate of inflation has just risen to 4.4 per cent, our money stock is still growing too sharply and this and other factors are restricting the room for manoeuvre of the Bundesbank's policy.'

Mr Schlesinger reiterated that at 7 per cent German interest rates for maturities of over one year were not high, in nominal or in real terms. At 8.6 per cent, only the money market rate for two- and four-week money was relatively high. 'That is the rate with which the Bundesbank tries to restrain too sharp a monetary

expansion.'

Mr Schlesinger's comments, made during a speech to bankers at Guildhall in London last night, suggest no significant cut in German rates is likely in the next few weeks, which could lead to further upheaval in the ERM.

Michel Sapin, the French Finance Minister, said sterling's 'immense fall' was responsible for Ireland's problems. 'Britain has no right to run a policy on the lines of 'I'll try to save myself and too bad for the rest of you' especially if it isn't working.' Theo Waigel, the German Finance Minister, joined forces with his French counterpart by rejecting Irish accusations that Paris and Bonn had abandoned Dublin to its fate.

'The problems concerning the Irish pound were not due to us or to the Bundesbank but to the interest rate cut in Britain,' Mr Waigel said.

Meanwhile, No 10 defended the time it had taken to repudiate a Sunday Times report of Mr Major taking charge of government economic policy with plans to cut interest rates to 4 per cent by the summer - a story that triggered a strong initial reaction on the foreign exchanges.

Pressed to explain why it had taken about 18 hours to issue the official denial, given that news of the report had broken on Saturday afternoon, the Prime Minister's office said timing had been geared to the opening of the Tokyo markets.

Gordon Brown, Labour's shadow Chancellor, commented: 'It is now unclear not only who is in charge of economic policy but what policy now is. Britain has now suffered a 20 per cent devaluation under the Conservatives and yet the trade deficit widens, the investment gap grows, and unemployment rises.'