Pound surges as unemployment falls again: Second fall in jobless numbers strengthens belief that recovery is finally under way

THE POUND surged to a 13-week high against the German mark yesterday as unemployment in Britain fell for the second consecutive month and the Bundesbank unexpectedly cut its key discount interest rate for the third time in as many months.

The pound rose by 2.1 pfennigs to close at DM2.4868, its highest since mid-January. It gained about 1.25 pfennigs following the unemployment figures - showing falls in jobless totals throughout the country - and pushed through DM2.48 on the German move. Against a basket of other currencies, the pound gained 0.6 points to close at 80.7 per cent of its 1985 value.

The markets were surprised by the Bundesbank's decision to cut its discount rate - the floor for market rates - by a quarter-point to 7.25 per cent. Prospects for a rate cut were thought to have receded following poor German money supply figures on Wednesday, which showed the broad measure M3 growing at 3.2 per cent in the year to March. The Lombard rate - the ceiling for market rates - was cut from 9 to 8.5 per cent.

Sterling's strength reflected the belief that the gap between German and British rates - which narrowed yesterday to 1.25 percentage points - is set to shrink further in coming months. Avinash Persaud, currency analyst at UBS, said the prospect of further rate cuts in Germany suggested that the pound could rise to DM2.60 in the next 12 months.

The German rate cut prompted reductions in Belgium, Denmark, the Netherlands, Austria and Italy, with the French also expected to follow suit next week. But the Treasury quickly poured cold water on hopes of a rate cut in Britain, arguing that the current 6 per cent base rate was consistent with recovery. Fears of inflation - accompanied by the growing belief that economic recovery in Britain may turn out stronger than expected - saw gilts prices drop on the unemployment figures, recovering some ground after the announcement of the German rate cut. The markets are becoming increasingly convinced that another cut in British interest rates is unlikely, and that the next move may be up. The 9 per cent stock due 2008 fell by pounds 7 32 to pounds 10527 32 , while the benchmark five-year bond now yields more than 7 per cent.

The cash and futures markets in German government bonds and other German securities were hit at lunchtime by incorrect news agency reports that the Bundesbank had left rates unchanged. Liffe said the market's trading mechanism coped with the swings. 'But when there are violent swings members are significantly affected,' a spokesman said.

Long-dated gilts prices were helped by average earnings figures, which suggested that inflation was unlikely to be a problem in the short term. Average earnings rose at an underlying rate of 4.5 per cent in the year to February, down from 4.75 per cent in the year to January.

Earnings growth has been depressed by falling pay settlements, which are now running below 3 per cent. Settlements in February included the laundry workers' wages council, at 2.41 per cent, down from 4.49 per cent last year. Earnings growth slowed from 5.25 to 5 per cent in manufacturing and from 4.5 to 4.25 per cent in services.

The combination of rising output and falling employment saw productivity growth in manufacturing accelerate to its highest rate in nearly six years. Output per person employed in the three months to February was 7.2 per cent up on a year earlier, the biggest rise since April 1987.

Rising productivity and slowing earnings growth saw the amount paid in wages and salaries to produce each unit of output drop 2 per cent in the year to the three months to April. This fall in unit labour costs - a key measure of international competitivenesss - was the largest since the measure began in 1970.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
News
Starting the day with a three-egg omelette could make people more charitable, according to new research
science
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
News
Comedian Ted Robbins collapsed on stage during a performance of Phoenix Nights Live at Manchester Arena (Rex)
people
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Online Media Sales Trainee

£15000 - £30000 per annum: Recruitment Genius: Now our rapidly expanding and A...

Recruitment Genius: Public House Manager / Management Couples

£15000 - £20000 per annum: Recruitment Genius: Are you passionate about great ...

Recruitment Genius: Production Planner

£20000 - £30000 per annum: Recruitment Genius: This fast growing reinforcing s...

Recruitment Genius: General Factory Operatives

£18000 - £35000 per annum: Recruitment Genius: This fast growing reinforcing s...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links