Pound plunges to all-time low

Economy: The prospect of lower borrowing costs in the UK and America knocks currencies but boosts bonds and shares

PAUL WALLACE

Economics Editor

The pound tumbled to an all-time low as a rise in unemployment and fall in retail sales led to mounting worries about a cut-and-run Budget and an early fall in interest rates.

The trade-weighted exchange rate fell from 83.3 to 82.6, just below its previous all-time low of 82.7 on 27 June. Sterling weakened against the dollar but the main fall was against the Deutschmark. It dropped by three pfennig to end the day at 2.1847, only a pfennig higher than its all-time low of 2.1765 on 9 May.

"Given the political climate and the proximity of the Budget, foreign investors have gone on a buying strike," said Kit Juckes, currency strategist with NatWest Markets. "There is a general nervousness in the markets that you'll get an insufficiently rigorous Budget and that interest rates will be cut before long."

Unemployment rose by 200 in October, the first increase since August 1993, and in marked contrast with the City expectation of a fall of 12,000. The rise took the jobless count to 2,265,500, 8.1 per cent of the workforce. Weakness in industry appears to have been mainly responsible. While the jobless count continued to fall across much of the country, this was offset by increases in the industrial regions of the East Midlands, the North- west and Wales. Employment in manufacturing fell in September by 3,000.

However, official statisticians warned that the increase was the result of an unusually large seasonal adjustment and was subject to revision, just as the provisional rise in July turned in the event into a small fall. The unadjusted figure fell by almost 80,000 as graduates who had come onto the count in the summer got jobs or moved back to higher education.

More encouragingly, new vacancies were at their highest for six years and placements, helped by a national advertising campaign, reached an all-time high. Underlying earnings remained flat in September at 3.25 per cent and those in manufacturing edged down to 4.25 per cent in both August and September.

Hopes that retail sales would revive in October were dashed by figures showing a small monthly fall of 0.1 per cent. The annual growth in retail sales, using the more accurate three-month on three-month rate, slackened to just 0.1 per cent, its lowest for three and a half years. The decline in sales was concentrated in clothing and footwear stores, which saw a fall of 1.4 per cent in October. Sales in food stores also dropped by 0.4 per cent.

The British Retail Consortium called for "a sustainable tax-cutting package" in the Budget.