Pound hangs on to close above parity

THE pound managed to remain above parity against sterling despite only very light intervention by the Central Bank.

The pound closed at 100.14p from 100.03 a day earlier after sterling was hit by an inflation report from the Bank of England in mid morning.

The bank said the 2.5 per cent British inflation target remains elusive and that interest rates may have to move up further. While this would normally help the currency, comments form the chief economist, Mr Mervin King, that sterling strength could be temporary provided an excuse for profit taking.

As a result, the pound also fell back against the deutschmark. It closed at DM2.4928, from DM2.4977 a day earlier. Sterling also fell back against the D-mark from DM2.4966 to DM2.4920.

Mr Jim Power, chief economist at Bank of Ireland, said reports that EU Commission forecasts had helped the D mark were untrue. "The forecasts were very strange and most countries achieving a budget deficit under 3 per cent looks like a fairytale."

Only the forecasts for the Netherlands and Finland look easily achievable, he said while "Ireland's forecast is so low at 0.9 per cent, it doesn't really matter if we don't do quite that well".

He believed the British inflation danger would be rethought. "The market will retain the view that the next move in UK interest rates is up," said Mr Power.