Norman Lamont will underline the government commitment to maintain sterling in the exchange rate mechanism at its present level in a speech to the European policy forum today.
The ERM 'straight jacket' is being used by anti-federalist Tory MPs to attack the Maastricht treaty. But Lady Thatcher enraged some of her supporters over reports that she had warned, at a Cliveden private meeting with leading businessmen, that the economy was heading for a 'financial accident'.
Her private office refused to comment last night, but her remarks echoed her recent public calls for sterling to be revalued.
Cabinet colleagues rallied round John Major and Mr Lamont. One cabinet minister said: 'We are absolutely united. What we want to see is a recovery that is sustainable.'
Lady Thatcher's pressure to reflate the economy was disowned by Thatcherite ex-ministers and business leaders. 'It really is outrageous for her to be saying we should reflate the economy. Someone should remind her what she was saying in 1981 when everyone was urging her to reflate,' a former ministerial ally said.
'Mrs Thatcher has started a debate which can only give the impression that the Government is under pressure to relax the battle against inflation,' said Peter Morgan, director general of the Institute of Directors. 'This could lead to a flight from the pound and severely restrict the Chancellor's freedom of action to cut interest rates.'
Mr Lamont told MPs: 'There are no quick fixes and the idea that by depreciating the exchange rate we would help the economy of this country is pure illusion, pure fool's gold.'
There is increasing pressure on Mr Lamont to cut interest rates from Tories alarmed at rising business failures. He will reject all the options to maintaining the parity of sterling in his speech today, which is designed to create room for a modest interest rate cut.
The Prime Minister flew to Helsinki after chairing the Cabinet meeting but Downing Street did not seek to conceal the disappointment at the failure to secure an agreement on Gatt, the General Agreement on Tariffs and Trade, at the G7 summit in
Lord Ridley, in a Bruges group speech, last night described eforts by Mr Major and European leaders to reverse the Danish referendum as 'small-minded'.Reuse content