U.K. MONEY DATA MAY EASE RATE CUT, ANALYSTS SAY
Slower than expected growth in Britain's
narrow M0 money supply measure in February will help spur a
further cut in U.K. Interest rates if a surge in sterling's
value requires such a move, economic analysts said.
    M0, the only targeted money supply measure left after
Chancellor of the Exchequer Nigel Lawson scrapped the official
target for the broad sterling M3 measure in his 1987 budget
speech on Tuesday, fell an adjusted 3/4 to one pct in February.
    On an annual basis, this put M0 growth at four to 4-1/2
pct, in the middle of the 1987 target of two to six pct.
    "The M0 data are much better than we expected," said Robert
Thomas, economist at Greenwell Montagu Securities.
    He and other analysts said while the better than expected
M0 figures alone would not be sufficient to trigger a new
interest rate cut, they removed an obstacle to such a move.
    Thomas noted the rise in M0 had been kept in check despite
buoyant retail sales in February, advancing an adjusted 2.2 pct
after a fall of the same size in January.
    Analysts said the M0 measure, reflecting variations in
consumer demand rather than real inflation prospects, was not
an adequate indicator to determine interest rates.
    "The authorities still seem to want to pretend that M0 is
important ... In practice, it is likely to be the exchange rate
and the election which call the tune," Lloyds Merchant bank
chief economist Roger Bootle wrote in a budget comment.
    Richard Jeffrey, economist at stockbrokers Hoare Govett,
said in a comment: "It is unlikely that (Lawson) will respond to
signals from M0 alone ... Reinforcement from exchange rate
trends is necessary before action is taken."
    "With the Chancellor making clear that policy manoeuvres are
made in response to signals from this narrow money variable,
the City has been forced to take it seriously," he added.
    Noting this point, Thomas said market fears at the end of
last year of an M0 overshoot had now disappeared.
    This removed a potential obstacle to a further cut in U.K.
Base lending rates if foreign demand for sterling pushed up the
pound above unofficial targets, analysts said.
    Such targets are believed to have been secretly agreed
between finance ministers of the Group of Five and Canada at
their Paris meeting last month, they added.
  U.K. Base rates have been cut twice by half a point since the
Paris agreement, once on March 11, and again yesterday when
foreign demand for sterling surged in reaction to a sharp cut
in 1987 government borrowing targets contained in the budget.
    They stand at 10 pct now, and foreign exchange dealers and
analysts expect them to shed another half-point in the coming
week.
    Analysts shrugged off as largely irrelevant a higher than
expected increase in February sterling M3, which pushed the
annual growth rate to almost 19 pct, well above the previous
target of 11 to 15 pct.
    Thomas said the February figures seemed to indicate the
improvement in sterling M3 growth witnessed over the past few
months had been reversed, but firm conclusions could only be
drawn after revised data are released on March 31.
    Some analysts said foreign investors had long ceased to
watch the sterling M3 target, and Lawson's move to scrap it
altogether earlier this week removed whatever was left of its
credibility as a key factor in monetary policy.
 REUTER
