The Sterling Crisis: Angry Tory MPs demand Lamont's resignation: Political reaction

Conservative MPs were stunned and angered by the speed and severity of the financial crisis, bringing the first public demands for Norman Lamont's resignation and even prompting speculation that John Major might face a challenge for the party leadership.

Andrew Hunter, Conservative MP for Basingstoke, and John Carlisle, MP for Luton North, both called for Mr Lamont to go.

Mr Carlisle said: 'If this was UK plc the finance director would have to resign. We need a fresh start, a new policy, out of the ERM, out of Maastricht'. The impact of the interest rate rise, if sustained, would be 'terrible'.

The Chancellor, he said, had 'derided his critics and yet this has happened. We have to see some confidence returning to the markets and this Chancellor does not inspire it'.

Even the Prime Minister might face a challenge this autumn, Mr Carlisle said, though he opposed the idea. 'Unless the Prime Minster changes direction or inspires some sort of confidence in his colleagues, it might be considered. I think it is very unlikely and personally that it is undesirable. But some might feel that if the damage is going to be done, it is better to do it sooner rather than later'.

Mr Hunter said that while the decision was for him, the Chancellor should go. 'He has presided over a failed policy. He lacks all credibility.' The interest rate rise was 'a tragedy of the gravest order'.

Tory alarm reached well into the ranks of the executive of the key 1922 backbench committee. Sir Michael Neubert, MP for Romford, said he was simply appalled. 'We are back to where we were two years ago. Nemesis has finally overtaken us. The Government has to re-think its whole economic strategy. The present policy is simply unsustainable.'

Sir Rhodes Boyson, MP for Brent North, said: 'I am concerned for the future of the country.'

Staunch defence of the Government and Chancellor came, however, from Sir Geoffrey Johnson Smith, vice-chair of the 1922 committee, who turned his anger on the Bundesbank. 'One is upset that this should be necessary,' he said. But it was 'sheer lunacy that we should have all this speculation about the currency'.

The comments that had been attributed to the President of the Bundesbank were 'wholly irresponsible', he said. The pound was 'not a weak currency against all the others in Europe, with the exception of the Deutschmark where it is only marginally out of line. There is no real reason for devaluation'.

Sir Geoffrey said he 'admired very much the strength of determination of the Government and the Chancellor. The Chancellor is doing the right thing, even if it is uncomfortable'. The Government should not let itself be 'rolled over' by the markets when there was no justification.

Some other members of the 1922 executive said privately, however, that Mr Lamont had to go. One declared: 'The fiscal policy is in ruins; it's in bloody tatters. It's time to change the Chancellor. If Norman went, it would take some of the heat off the Prime Minister.'

John Watts, the Tory chairman of the Treasury select committee, said: 'We will only have got it wrong if the end result was a devaluation. But if we can win through this particular turbulence and remove the suspicion from the market that a British government will always devalue . . . then we will have won a major prize'.

But Conservative MPs opposed to Maastricht said the crisis only proved their case for Britain to reject the treaty and leave the ERM. Even some not noted as opponents said hostility to the treaty would rise.

John Townend, chairman of the Tory backbench finance committee, said: 'If these rates continue for a number of weeks we will be heading for the biggest slump since the 1930s. The ERM and monetary union have failed'.

Nicholas Winterton, MP for Macclesfield, said: 'This is a disembowelling of the little life that is left in the British economy.'

Lord Ridley, one of Margaret Thatcher's most loyal supporters, said he felt 'extremely sorry for the people of Britain'. It would be disaster for business and extremely serious for mortgage-payers. Yet it was all unnecessary.