German borrowing fears boost sterling

The pound rose by more than three pfennigs against the mark yesterday, as the markets reacted to rumours that German borrowing will be much higher than the 2.9 per cent of GDP that the government is predicting, writes Yvette Cooper.

Closing at DM2.7458, sterling is at its highest level against the mark since late 1992 and just below the DM2.78 level at which the pound left the exchange rate mechanism.

Traders have taken several days to respond fully to the abysmal German unemployment figures released last Thursday. Although analysts were quick to sound the alarm when unemployment statistics proved higher than expected last week, the markets are still adjusting to the idea that the German economy is even weaker than it had previously thought.

Rumours yesterday that German officials were revising upwards their predictions for government borrowing to push the mark down in relation to the pound were denied by the Finance Ministry.