UK BANKS CUT RATES ENDING POUND'S RISE

UK BANKS CUT RATES ENDING POUND'S RISE

A cut in U.K. interest rates Tuesday put an end to sterling's advance and signaled a truce between Prime Minister Margaret Thatcher and Chancellor of the Exchequer Nigel Lawson.

The major clearing banks all reduced their base lending rates by 0.5 percentage point to 7.5 percent, the lowest level for a decade, after the Bank of England sent out a clear signal to the money markets in the morning.The recent strength of sterling to a 30-month high had led to a political crisis, with Mrs. Thatcher apparently disagreeing with Mr. Lawson over exchange rate policy and refusing to endorse his economic strategy of keeping the pound stable against the deutsche mark.

However, the row was patched up when Mrs. Thatcher told the House of Commons Tuesday afternoon there was complete and total unanimity between herself and the chancellor. The prime minister added that she agreed entirely with the firm monetary policy pursued by Mr. Lawson's and told opposition leader Neil Kinnock that it would be a great mistake for any speculator to think at any time that sterling was a one-way bet. Her statement was interpreted as a clear victory for Mr. Lawson.

The reduction in borrowing costs, together with the much better than expected U.S. trade figures, pushed the pound down sharply. The trade-weighted index against a basket of currencies fell to 78.4 at the close from 79.2 Monday evening. As the dollar powered ahead, the pound lost almost 4 cents to $1.85 before closing around $1.8637. Having touched DM3.20 against the deutsche mark Monday, sterling slid back to DM3.1745 in London late Tuesday afternoon.

Britain's monetary authorities had been resisting a cut in interest rates

because of concern about the already high rate of consumer borrowing and soaring house prices. To further stimulate demand for credit could also push up retail prices. But a possible deterioration in the inflation rate was overshadowed by a more immediate concern about Britain's overseas competitiveness.

The sharp decline in sterling's value after interest rates were lowered was warmly welcomed by British industrialists who had warned the government Monday the pound's upward spiral was threatening export orders and squeezing profit

margins. International demand for sterling had been fueled by Mrs. Thatcher's recent assertion that you can't buck the market, taken to mean she wouldn't condone further heavy intervention in the foreign exchange markets to stop the currency from appreciating.

Mrs. Thatcher's statement in Parliament Tuesday calmed market speculation Mr. Lawson was prepared to resign over the issue. He has been a highly successful chancellor who has presided over Britain's spectacular economic recovery and managed with a high degree of success to maintain a stable exchange rate regime until a couple of months ago when Mrs. Thatcher ruled out any further large-scale intervention in the foreign exchange markets.