Clarke's tax warning boosts pound

THE POUND strengthened yesterday after Kenneth Clarke, the Chancellor, served notice that he is prepared to raise taxes in the November Budget, writes Peter Torday.

Sterling was also helped by Mr Clarke's insistence that there was no immediate likelihood of a further cut in base rates and that he was determined not to take risks with inflation.

In London, sterling closed 0.62 pfennigs higher at DM2.5180. Against the dollar it gained 1.32 cents to dollars 1.4812. This latest blow to hopes of further base-rate cuts helped to push three-month money rates slightly higher, to just above 6 per cent against just under 6 per cent yesterday.

Short-dated gilts edged down gently in sympathy with Mr Clarke's comments on interest rates, while prices for long-dated government bonds rose marginally on the Chancellor's tough line on the public sector borrowing requirement.

The dollar meanwhile failed to extend its rally against the mark. It ended 1.40 pfennigs down at DM1.6985 and retreated more sharply against the yen, shedding 3.75 yen to Y106.30.