NATIONAL SAVINGS MOVE POINTS TO LOWER U.K. RATES U.K. Interest rates look set to move lower even after Monday's half-point cut in bank base rates to 10-1/2 pct, analysts said, citing as evidence the suspension of a British National Savings issue yesterday. The Department of National Savings, effectively a Treasury Department unit, yesterday suspended its 32nd issue, launched in October and paying a high tax-free 8-3/4 pct on five-year private investments between 25 and 5,000 stg. A spokesman said the suspension was just a reaction to yields on national savings bonds being way out of line with the rest of the market. The move was followed by a surprise sell-out within minutes today of a Bank of England one-billion stg tap issue, the second such issue in as many weeks, analysts noted. They said the near-instant sale of the entire new gilts issue, for which the Bank of England had required a high 40 pct downpayment, was clear evidence that the market thought rates had to drop sooner rather than later. The sale of the tranche of 8-3/4 pct treasury bonds due 1997 occurred in an active, bullish gilts market as downward pressure on money market rates remained intact, with the bellwether three-month interbank rate down 1/8 point at 10-9-7/8 pct. It coincided with another strong sterling rally which pushed the pound to four-year highs against the dollar. "That government stock disappeared very quickly indeed," said Stephen Lewis, head of economic research at stockbrokers Phillips and Drew; "It is an indication that the market believes rates are going to fall further ... At least by a half-point immediately after the budget (on March 17), and some people hope for more." Stockbrokers James Capel said in a comment the move by the National Savings Department was "of considerable significance." It said, "the real message ... Is that the decks are being quickly cleared so as to facilitate a speedy decision by the building societies to cut their rates when the inevitable cut in bank base rates to 10 pct materialises." Building societies have said a drop in bank base rates would normally have to exceed half a point to give rise to a reduction in mortgage lending rates. Lewis of Phillips and Drew said he too believed the National Savings issue suspension may reflect new U.K. Treasury policy to point building societies towards a mortgage rate cut. "National Savings has been competing too effectively with the building societies of late. Building society income has been depressed in recent months," he said. He and other analysts said Chancellor of the Exchequer Nigel Lawson was keen to see mortgage rates fall to keep a lid on U.K. Inflation. Underlying upward pressure on prices is stronger in Britain than in most other Western economies with inflation seen rising well above four pct this year and above five pct in 1988 after last year's 3.7 pct. Emphasising the impact of mortgage rates on consumer prices, Lewis said a one-point cut in building society rates would reduce inflation in Britain by about 0.4 pct. But Lewis and others noted that building societies had been complaining to the government about intense competition from National Savings, which they argued reduced the scope for early mortgage rate cuts. "The Chancellor need not be worried about losing some PSBR funding from National Savings, but he must be taking the building societies' criticism to heart. It looks like the National Savings move reflects this," one senior dealer said. A Savings Department spokesman refused to comment on this interpretation, saying the suspension of the issue was merely a reaction to the recent fall in U.K. Interest rates, which had pushed yields on national savings bonds way out of line with the rest of the market. "We are not politically motivated ... Funding was just becoming too expensive and we don't need all that money," he told Reuters, adding the department had suspended issues at least twice in the past, when offered interest rates were above or below market rates. He said demand for the issue had risen sharply of late as U.K. Money market rates continued their steady decline and income was threatening to overshoot an unofficial three billion stg target set for fiscal 1986 ending March 31. In the first 10 months of fiscal 1986, National Saving's contribution to government funding totalled 2.72 billion stg, compared with 2.01 billion stg in the same period of the previous year, official figures show. Figures for February, out on Monday, are expected to show a further increase of between 300 and 400 mln stg, pushing the total for 11 months above target, government officials said.