Major resists clamour for devaluation of the pound

DOWNING STREET yesterday underlined the Prime Minister's backing for his embattled Chancellor by emphasising that there would be no devaluation of the pound in spite a clamour from backbenchers and business leaders for lower interest rates to ease the recession, writes Colin Brown.

The Prime Minister's office said: 'There will be no change. We are staying in (the exchange rate mechanism) at the present rate.'

10 Downing Street also confirmed it was John Major's long- term objective to make sterling the strongest currency in the ERM - a message designed to steady the pound by convincing the markets of the Government's determination to secure economic recovery through low inflation.

That message will be reinforced by Michael Portillo, the Chief Secretary to the Treasury, this week in letters to Cabinet colleagues calling for cuts in their departmental spending plans.

Senior backbench MPs warned yesterday that a failure to offer any short-term fillip for business would mean the economy would be a 'powder keg' under the Conservative Party conference in October.

One senior Tory said: 'I think the Chancellor's position is secure because he has the backing of John Major. We have had the David Mellor experience. We know how loyal John Major is to his colleagues. He doesn't want a Cabinet reshuffle starting with his Chancellor. The conference will get the message.'

Mr Major will leave this week for a holiday in Spain, including a visit to the Olympic Games. The Chancellor will remain on Treasury call before going on holiday in mid-August. Frank Dobson, the Shadow employment secretary, said: 'It would be better for Britain if Mr Lamont forgot to come back.'

William Rees-Mogg, page 17

Weak exports, page 18

Gavyn Davies, page 19