Pound slips against sterling as British economy expands

THE pound fell further against sterling while making small gains on the deutschmark yesterday.

Sterling bounced back against the deutschmark and reached 15 month highs against the dollar after the release of GDP figures which confirmed the picture of an expanding economy.

The pound closed at 100.77p against sterling from 101.01p a day earlier. It also closed at DM2.462 from DM2.4476.

"The news that UK third quarter GDP was up 0.8 per cent from 0.5 per cent was taken positively," Mr Jim Power, chief economist at Bank of Ireland, said. "It keeps the argument pushing sterling on the boil. The question is now not whether there will be a UK rate rise, but when," he said.

"Its gains against the dollar are a huge technical breakout and sterling is very well supported at these levels."

At the same time, the pound has remained well within the notional 2.25 per cent band against the deutschmark, a move which will be welcomed by the Central Bank. It is keen that the pound is seen to trade in a fairly stable range against the German currency in the run up to qualification for monetary union.

However, Mr Power warned there could be a fresh push next week to get the pound through the barrier. In recent weeks, moves through this level are thought to have sparked intervention by the Bank.

Nevertheless, it will remain low against sterling, trading in a range of 100.5p to 101p, he said. "It is difficult to anticipate why there should be any sharp move in any direction," he said.

The continued low level against sterling - the pound traded as high as 104p in recent weeks - will be welcomed by exporters.

Sterling gained despite revived hopes for lower German interest rates as two Bundesbank council members hinted policy might yet be eased, only two days after policy makers had quashed all rate cut speculation.

Speaking at separate events, the central bank's chief economist, Mr Otmar Issing, and a council member, Mr Ernst Welteke, stressed there was no need to cut rates now but held out hope that the bank could consider a further easing.

While saying that rate cuts were still possible mid term, Mr Welteke nonetheless said that, unless trends in key indicators changed, there was no reason to adjust rates.

Meanwhile, the value of Irish retail sales fell a seasonally adjusted 0.5 per cent in August, giving a year on year increase of 7.1 per cent.

In July, the value of sales fell 0.8 per cent, giving a year on year rise of 7.4 per cent, which is slightly lower than last month's provisional figures showing a fall of 0.7 per cent year on year.

The monetary leanings of the Bundesbank grew ever more unclear as its president, Dr Hans Tietmeyer, said he saw no need for easier interest rate policy in the foreseeable future.

His comment followed remarks from two of his fellow council members which seemed to suggest that a rate cut was indeed possible in this business cycle - comments which had sent German stocks and European bonds higher.

Dr Tietmeyer forecast 1996 economic growth of 1 per cent or more and that interest rates were not now standing in the way of economic growth.

"And I am assuming that there is a strong chance that (such growth) will continue into next year," he said.

The comments were the latest twist in a string of remarks from the Bundesbank that have sent conflicting signals about the central bank's intentions regarding interest rates.

Speaking at separate events earlier yesterday, the Bundesbank's chief economist, Mr Otmar Issing and a council member Mr Ernst Welteke stressed there was no need to cut rates now, but held out hope that the central bank could consider a further easing.

Mr Issing, whose comments in a German television interview last Wednesday reduced financial market hopes for lower rates, was asked in Brussels if he meant to rule out any rate cuts forever. He responded: "Of course not. There is never an end."