George `talks down' sterling

THE POUND weakened yesterday after Eddie George, Governor of the Bank of England, said it was "clearly too strong" at its current level for the UK to join the euro.

The Governor's remark, in an interview with Reuters on the second anniversary of Bank of England independence, was seen in the currency markets as part of an official attempt to talk down sterling. The pound's index against a range of other currencies dropped by 0.3 to 104.3, and it fell to 66p to the euro.

Mr George also confirmed that he would retire when his term of appointment ends in mid-2003, shortly before his 65th birthday. This opened the way to speculation about the choice of a successor, with Gavyn Davies, the millionaire Goldman Sachs economist and Mervyn King, one of the Bank's deputy governors, the favourites.

The Governor's comments on the pound followed Thursday's statement from the Monetary Policy Committee indicating that it might cut interest rates further if the currency stayed so high.

The Governor would not comment on the likelihood of Britain joining the euro, saying it was a political decision. But he added: "I'm glad we did not go in at the start because our position was not the same as theirs."

The British and Continental economies were now moving closer together, he said. Mr George also said the Government was likely to adopt the harmonised index of consumer prices, the European-wide measure, as the inflation target.

He said the MPC had been "remarkably successful" at keeping inflation close to the 2.5 per cent target.