Pound falls as markets cast vote

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The currency markets cast their vote decisively against the Chancellor's decision not to raise base rates yesterday, writes Diane Coyle.

The pound's index against a range of other currencies dropped by 1 per cent, ending the day only slightly above another record low.

Traders in London predicted another onslaught next week - starting on Monday when the London markets are closed but the rest of the world is open. The unexpected lack of action on base rates only reinforced the grim view the market formed after the local election results. Few foreign investors can think of any reason for sterling to recover now, so they are likely bet on its further weakness.

The Bank of England was rumoured to have intervened yesterday, buying pounds to limit the exchange rate fall. The pound had already fallen 4 per cent since the new year.

The Treasury calculates that such a decline wipes out the effect of a 1 percentage point rise in base rates - equal to the increases in December and February.

Business, pages 16, 17