U.K. TRADE FIGURES BUOY HOPES OF INTEREST RATE CUT
The release of U.K. February trade data
showing that the current account surplus was a provisional 376
mln stg, up from a 73 mln surplus in January, has boosted hopes
of an early cut in interest rates, analysts said.
    Market forecasts had been for a worse outcome, with
expectations of a deficit in visible trade averaging about 750
mln stg, against the official figure of 224 mln stg, sharply
narrower than January's 527 mln deficit.
    "The figures are unreservedly good," Chase Manhattan
Securities economist Andrew Wroblewski said.
    Sterling rebounded on the trade figures, reversing a weaker
morning trend, to stand at 72.1 pct of its trade weighted index
against a basket of currencies at midday, unchanged from
yesterday's close but 0.3 points above the 1100 GMT level.
    The market had feared that a deteriorating non-oil trade
pattern would undermine international support for sterling,
which has been the motor behind the recent fall in U.K.
Interest rates. Money market sources said the market had begun
to doubt that a widely expected drop in bank base lending rates
to 9.5 pct from the present 10.0 pct was really on the cards.
    But sentiment now looks to have turned about again.
    There now looks to be no danger that the Chancellor of the
Exchequer Nigel Lawson's forecast of a 1987 current account
deficit of 2.5 billion stg will be exceeded, said Wroblewski.
    Seasonally adjusted figures showed that imports rose in
February to 7.16 billion stg from 6.73 billion in January.
    Exports rose to a record 6.93 billion from 6.20 billion.
    However, Chris Tinker, U.K. Analyst at brokers Phillips and
Drew said that the faster rise in exports than imports would
prove partly aberrational in coming months. He forecast the
Chancellor's Budget tax cuts would increase consumer expediture
on imported goods.
    However, Ian Harwood, economist at Warburg Securities, said
his firm was sharply revising its 1987 current account deficit
forecast in the light of the latest data, cutting one billion
stg off the expected full year total to about 1.75 billion stg.
    He said news of strong growth in exports of non-oil goods
confirmed recent bullish surveys among members of the
Confederation of British Industry.
    The growth in imports appears to be flattening, even if
January's bad weather had curbed consumer spending on overseas
goods and import-intensive stock building among manufactureres,
Harwood said.
    U.K. Government bonds, or gilts, surged by more than 1/2
point on the better-than-expected news, as earlier worries
about the figures evaporated.
    Sterling peaked at a high of 1.6075 dlrs, before settling
to a steady 1.6050 dlrs about 1300 GMT, nearly a cent higher
than the European low of 1.5960.
    However, analysts noted that the turnabout in market
sentiment still looks highly vulnerable to political news.
    Morning weakness in sterling and the gilt market was
largely attributed to a newspaper opinion poll showing that the
Conservative government's support was slipping.
    The Marplan poll, published in "Today," showed Conservative
support had fallen to 36 pct, from 38 pct last month, while the
Alliance of Liberals and Social Democrats had rallied to 31
pct, from 21 pct, to run neck and neck with the Labour Party,
whose own support fell from 38 pct.
    The poll was taken after the Budget, which was greeted
enthusiastically by financial markets but seems to have left
the voters indifferent, political observers said.
    Another regular poll is due tomorrow, and eonomists warn
that today's improved sentiment could be dented if support for
Prime Minister Margaret Thatcher slips again.
    This upsetting of the markets' political perceptions, which
are all but discounting a Conservative victory in the upcoming
general election, made them more sensitive to the trade data,
Harwood said. "The news did come as a very, very substantial
relief," he said.
    However, on the interest rate front, economists caution
that Lawson might be wary of leaving sterling vulnerable by
encouraging another base rate fall. They noted Lawson had
already got an inflation-reducing cut in mortgage rates in
response to lower base rates, so domestic political reasons for
lower rates have been curtailed.
 REUTER
