Tumbling pound expected to boost British output

BUSINESSES throughout the country expect their order books to improve in the next four months as the lower pound boosts demand for exports, the Confederation of British Industry said yesterday.

The CBI's comments came as the pound slipped to a fresh low on the foreign exchanges, closing 0.2 points lower against a basket of currencies at 76.4 per cent of its 1985 value. The pound closed 0.36 pfennigs lower at DM2.3604 and nearly half a cent lower at dollars 1.4263.

Wales, the South-west, East Anglia and the North-west see the best prospects for demand, according to the regional analysis of the CBI's quarterly industrial survey, carried out in conjunction with Business Strategies Limited.

'There is increased optimism in all regions about the business situation and about export prospects over the next 12 months,' Andrew Sentance, the CBI's director of economic affairs, said. The lower pound makes British goods cheaper in overseas markets.

The rise in output is expected to be more modest than the improvement in orders as companies run down stocks. Output is expected to rise most rapidly in Scotland and Northern Ireland and to continue falling only in the North.

Trading on the foreign exchanges was relatively quiet yesterday after the volatility of recent days. Dealers are awaiting tomorrow's January inflation figures, which may show the underlying rate of price increases nudging the Government's 4 per cent target ceiling.

Eddie George, Governor-designate of the Bank of England, is expected to warn of the dangers of higher inflation in a speech in Frankfurt this afternoon.

Last week's cut in key German interest rates is expected to ease pressures in the exchange rate mechanism only temporarily. The Bundesbank yesterday reflected the trend towards lower rates by accepting just over 8.5 per cent on variable-rate repurchase agreements.