Pound at new high

THE POUND rose to a fresh six-month high against the German mark yesterday, despite rumours that the Bank of England has been intervening to prevent the pound from rising too far, writes Robert Chote.

Britain's reserves of gold and foreign currency rose by an underlying dollars 87m in December, compared with an increase of dollars 77m in the previous month, according to the Treasury. Intervention to cap the pound would involve selling sterling on the foreign exchanges to keep down its price in terms of other currencies. This would boost the reserves.

The reserves fell by an unadjusted dollars 674m in December to end the month at dollars 42.93bn. The drop occurred largely because dollars 593m of the revolving credit facility taken out by the Government before Black Wednesday was repaid early.

The rumours of intervention were widespread, but there was no hard evidence. Steve Barrow, of Chemical Bank, said the authorities would be concerned if the pound rose too much, but added: 'We are quite a long way from that level.' Avinash Persaud, of JP Morgan, said there were no obvious signs of intervention, but that fear alone should 'stop sterling in its tracks'.

The pound rose 1.02 pfennigs to DM2.5885. The mark fell after a Bundesbank council member said German interest rates would fall further this year. Amid fading hopes of an early rate cut in Britain, Sir Nicholas Goodison, chairman of TSB, said rates should not be cut to keep inflation low.