Pound makes small advance against sterling

THE pound made small gains against sterling yesterday, even as the British currency reached fresh highs against the dollar and deutschmark.

Sterling accelerated on renewed hopes of another rise in interest rates, ahead of figures showing rising October retail sales and a 10.3 per cent jump in broad money supply growth.

The pound closed at 2.5191 deutschmarks from DM2.5220 and at 100.31p sterling from 100.19p. Traders said recent Central Bank intervention has now put a floor at just above parity. They added the pound is likely to remain in very tight ranges against sterling but that a break above 101p is most likely if rate speculation tails off in Britain.

However, analysts said the pressure is still on for another rate increase in the UK, possibly before Christmas.

"The upward pressure on interest rates is still there, and, therefore, the upward pressure on the currency is still there," said Mr David Coleman, chief economist at CIBC Wood Gundy.

The 0.4 per cent month on month retail sales increase matched forecasts but the three month leap of 4 per cent compared to the same period a year ago was the largest rise in over two years.

The market spotlight is now on the next monetary meeting between the Bank of England governor, Mr Eddie George, and the Chancellor of the Exchequer, Mr Kenneth Clarke, on December 11th, with speculation intensifying that interest rates will be increased then.

"Despite sterling strength and the rate rise on October 30th, there is a continued feeling that policy is too loose and ought to be tightened, and there's a feeling the Chancellor may well do it," said Mr Ian Stewart, UK economist at Merrill Lynch.

"To that extent it ought to be a small positive for sterling," he added.