THE pound rose against sterling after a surprise interest rate cut in Britain yesterday, closing at 102.51p from 102.37 a day earlier.

Britain unexpectedly cut official interest rates by a quarter of a percentage point to 5.75 per cent yesterday, the fourth such cut since December. However, Irish interest rates are seen as very unlikely to follow suit.

"If the Central Bank needed an excuse not to cut rates they would have had it in yesterday's strong private sector growth figures averaging 11.7 per cent in the past year," said Mr Dermot O'Brien, economist at NCB Stockbrokers.

The Chancellor of the Exchequer, Mr Kenneth Clarke, said his decision was justified by low inflation and "below trend" economic growth, but many analysts said the move was politically motivated.

Soon after Britain cut its base rates, the Bank of France announced that it was to cut its repurchase rate by 0.10 points to 3.60 per cent while Denmark also announced rate cuts. Spain and Sweden cut key rates earlier in the week.

But their decisions to cut base rates contrasts with intransigence at the Bundesbank, which has held its repurchase rate at 3.30 per cent since February.

British mortgage borrowers will benefit, as banks and building societies followed suit. Halifax building society, Britain's largest mortgage lender, cut its key mortgage rate to 6.99 per cent from 7.25 per cent.

The Bank of England made no comment. But there was speculation that Mr George, who has in the past been at loggerheads with Mr Clarke over monetary policy, may not have approved of the reduction.

The bank has recently been less optimistic about the outlook for inflation. Presenting its quarterly inflation report on May 14th, the bank's chief economist, Mr Meryn King, said it was not easy to see a case for reducing rates further.

The Bank of France lowered its intervention rate, which sets the floor on money market rates, to 3.60 per cent from 3.70 per cent, but left its less important ceiling five to 10 day lending rate unchanged at 4.90 per cent.

Though the French economy rebounded in the first quarter, economists say it is likely to be weaker in the second quarter and consumer spending vital to a real recovery is so far showing no lasting signs of picking up.

The fall brings British mortgage rates to their lowest level for three decades.

The news led Conservative backbenchers, encouraged by improving economic news, speculated that the Prime Minister, Mr Major, was leaving open the option of calling a snap autumn election on tax cuts and anti European feeling following the beef crisis.

The volume of retail sales grew for the eighth month running in May, although more slowly than in April.

Retailers' optimism about future sales returned to its highest level since 1988, according to a CBI survey.