Sterling Recovers Slightly
LONDON (AP) _ The sagging British pound rose slightly today following Prime Minister Margaret Thatcher’s decision to raise interest rates, but friends and foes of her government said the move was ″too little, too late.″
Alarmed when the pound hit an all-time low of $1.10 in Hong Kong on Monday, Mrs. Thatcher’s Conservative government decided to reactivate the minimum lending rate it had suspended in August 1981 as part of its free market doctrine.
The British currency briefly rebounded to $1.13, then dropped to $1.1125 in New York on Monday afternoon.
This morning, it opened in Hong Kong at $1.1187, up slightly from Monday’s close of $1.1135. When trading opened in London, the pound advanced to about $1.12.
″We are gaining ground gradually, not only against the dollar but against other currencies as well,″ said Owen Mitchell, chief currency trader at London’s National Westminster Bank.
Said another trader: ″So far today, sterling is looking fairly comfortable.″
But traders in Hong Kong said the British action appeared to have had little impact.
″The general feeling here is that the British action was too little, and too late,″ said Michael Phua, a vice president of the Bank of America in Hong Kong.
A year ago, the pound was quoted at $1.4165. Five years ago it was $2.40.
Reactivating the minimum lending rate allows the Bank of England override the money markets’ interest rate structure and hike the cost of borrowing.
Higher British interest rates make sterling holdings more attractive to investors but harm industrial activity by making it more costly to borow. The move sent prices on the London stock market tumbling.
Mrs. Thatcher’s government has blamed the crisis on falling oil prices, high U.S. interest rates and lack of confidence brought on by critics demanding heavier expenditures to create jobs.
But British newspapers harshly criticized her government for the crisis, with pro-government newspapers aiming their ire at her chancellor of the exchequer, or treasury secretary, Nigel Lawson.
The Daily Mail, normally one of Mrs. Thatcher’s keenest supporters, condemned the move under a front page headline reading: ″Pathetic - The Case Against Lawson: Too Little, Too Late And Too Lackluster.″
The Daily Express, another tabloid that normally supports the Conservatives, wrote: ″Nigel Lawson has suffered a nasty and embarrassing fall.″
The independent London Times said: ″The government is wholly to blame ... and ... the Prime Minister and the Chancellor (of the Exchequer, Nigel Lawson) must take the lion’s share. The foundation stone of a strong currency -any currency - is confidence. It is a basic, gut confidence in this government which is lacking and has been lacking fundamentally since the 1983 election and in particular since last year’s budget.″
The pound has fallen 15 percent against the powerful dollar in just four months. Reactivation of minimum lending rate pushed the basic interest rate to 12 percent, which translates into about 13 percent for preferred borrowers and 14 percent or more for others. The rate had already risen 1 percent on Friday.
The Daily Mirror, which supports the opposition Labor Party, wrote: ″Mrs. Thatcher and Mr. Lawson are the culprits. Both repeatedly boast of their firmness. Yet, in this crisis, both have been weak and indecisive.″
Mrs. Thatcher’s government came to power in 1979 pledged to make the fight against inflation its top priority and has lowered it from over 20 percent four years ago to 4.9 percent now.
But her tight-money policies have helped push unemployment to 3.2 million or 13.4 percent and, since her re-election in 1983, she has faced growing demands to relax the fight on inflation and increase government spending to ease unemployment.
The new interest rate signaled a probable hike in mortgage rates at a time when the government is encouraging more citizens to buy homes.
Lawson indicated to the House of Commons on Monday that tax cuts expected in the government’s annual budget on March 19 could be at risk because of the sterling crisis. Press reports before the crisis said the tax cuts might total 1.5 billion pounds.
Lawson was lambasted by Labor members in Commons. Said Labor’s economics spokesman, Roy Hattersley: ″Government policy is now a shambles ... Its inadequacies have been emphasized by incompetence and vacillation over the past week.″