LAWSON REMARKS DASH HOPES OF EARLY U.K. RATE CUT Chancellor of the Exchequer Nigel Lawson's remarks yesterday suggesting there are precise exchange rate targets for the pound undermined sterling, dashing hopes for an early cut in U.K. Base rates, analysts said. But the market's reaction, testing exchange rate levels indicated by Lawson, was probably overdone and the longer term outlook for sterling remained bullish, they agreed. In an apparent break with the previous policy of secrecy, Lawson told a National Economic Development Council meeting he was comfortable with sterling exchange rates around current levels, specifying rates of around 1.90 marks and 1.60 dlrs. Lawson added the U.K. Government intended to keep sterling at about present levels, using currency intervention and interest rates to achieve this. The February 22 Paris agreement of the Group of Five and Canada to stabilise exchange rates is widely believed to include target ranges, but all participants to the meeting had so far refused to specify these. Markets were quick to react to the statement, chopping about one U.S. Cent and over one pfennig off the pound to match the levels mentioned by Lawson. But most analysts polled said they did not believe Lawson's statement signalled a change in U.K. Policy. Keith Skeoch, chief economist at stockbrokers James Capel and Co, said, "the remarks have been blown out of proportion. Lawson is paying now for a little bit of a slip of the tongue." Barclays de Zoete Wedd economist Mark Brett said, "there is nothing great and fantastic in the Chancellor's statement." He said he did not believe the rates indicated by the Chancellor were precise targets, but merely represented central rates around which sterling would be allowed to fluctuate, perhaps by as much as 10 pct. "It would be insane to pinpoint an exchange rate ahead of an election ... I don't believe Lawson is mad enough to tie himself to a fixed rate," Brett said. Currency markets were keen for official statements to clarify the scope of the Paris accord and reactivate currency trading. This mood easily led to over-reaction, analysts said. "Making similar statements when the market is high strung and ready to bounce is perhaps a mistake," one senior dealer with a U.S. Bank said. Capel's Skeoch said, "it gives the foreign exchange markets something to shoot at." "It is obvious that the government, as a member of the Group of Six, has agreed exchange rate bands. But they are not cut in stone, they can change with time," Skeoch said. Brett said, "we think the 2.90 marks level is a central rate. Give or take 10 pfennigs and all is fine." Not all analysts played down the significance of the remarks, however. Chris Dunn, economist at Royal Bank of Canada, said the remarks may signal a decisive move to insulate sterling from the fortunes of the dollar. Although about two-thirds of Britain's trade is conducted with European countries, sterling has traditionally shadowed the dollar rather than the mark, analysts noted. "Britain must decide whether it wants to follow the U.S. Or throw in its lot with Europe," Dunn said. "It suggests that while the U.K. Is not actually applying to join the European Monetary System, it is seeking protection by shadowing it ... The Bundesbank has made it clear that it wants the U.K. To clarify its position relative to the mark," he said. Analysts said sterling's dip on currency markets following Lawson's remarks made an early half-point cut in U.K. Base rates from current 10 pct levels unlikely in the short term. "Over the next three weeks, a cut is out, unless we get some extremely good economic indicators," Capel's Skeoch said. Base rates have been cut twice by one-half point in March, the last after the March 17 budget presentation, and analysts had been expecting another half point cut shortly afterwards.