The Sterling Crisis: MPs' relief on interest rate mixed with doubt: Tory backbench reaction

CONSERVATIVE relief that interest rates are not at 15 per cent was yesterday mixed with deep uncertainty over where the Government goes next on the economy.

Fresh demands for Norman Lamont to resign emerged. Party managers, despite John Major's ringing endorsement of the Chancellor, adopted a 'wait and see' view of his survival chances.

One who acknowledged the damage to the Chancellor's credibility, said it was obviously 'very difficult' for him to continue - adding he hoped he would be able to go 'at a civilised time' well after next week's emergency economic debate.

Andrew Hunter, the Basingstoke MP, who called for Mr Lamont's head on Wednesday, was joined by new voices in arguing that 'the Chancellor's position is intolerable because he presided over a strategy that was fundamentally flawed and has been shown to be so all too horrifically'.

But government whips who calculated that some who had supported the Chancellor's stand had turned against him, also reported that some who had been attacking the Chancellor had backed off now that Britain's ERM membership was suspended and the pound devalued. Sir Teddy Taylor, chairman of the anti-Maastricht European Reform Group, said: 'It is of no consequence for us who runs the Treasury.'

What mattered was a clear commitment not to return to the ERM, he said.

One well-placed judgement was that the Chancellor 'might survive politically, but the question is can he economically? If the City decides they can never believe a word he says again then he's washed up in that job'.

The vacuum created by the Government's decision to pull out of the ERM led to the battle over future economic policy commencing on the backbenches.

Pro-Maastricht MPs argued the week's events underlined the need for a single currency, its opponents saying it showed the ERM could not work. Hugh Dykes, MP for Harrow East, said: 'This shows the need to go for a single currency even faster than Maastricht - it would eliminate all these agonies.'

Richard Shepherd, the MP for Aldridge-Brownhills, said the decision was 'like a thunderstorm that has cleared the air'. The Government should now cut interest rates to rescue businesses and homeowners and stimulate Britain's real economy, he said.

One senior fiscally-correct Tory who has been defending the Government's fight for the pound in recent days, said that now it had failed 'we might as well take advantage of the situation' - reducing interest rates to 8 per cent and getting the economy going.