BANK OF ENGLAND RESISTS PRESSURE FOR RATE CUT The Bank of England again fought against money and bond market pressure for a pre-Budget interest rate cut, leaving the pound to take the strain with a further rise in its trade-weighted index to a six-month high. It closed at its best level since September 12, at 71.4 pct of its 1975 value on the index, as foreign investors continued to buy into a currency which offers high relative returns and the possibility of short-term capital gains, dealers said. Meanwhile, opinion is divided over whether the Bank can stop a cut before Budget Day, March 17, and why it should want to. The Bank's latest strong signal to the market that it wants rates to stay steady for the moment came in midafternoon, when it lent to the discount houses at a penal rate of 11-3/4 pct to relieve a money market shortage. "They're really making the discount houses suffer," said Stephen Lewis, economist at brokerage house Phillips and Drew. "Eleven and three-quarters pct is way above money market rates." This money market signal was apparently not accompanied by any sterling sales on the foreign exchanges, talk of which had inhibited strong rises yesterday and Tuesday, so buyers came strongly into the pound. The pound surged to a high of 1.5798/808 dlrs at the London close, up from the previous finish at 1.5650/60, and 2.8900/60 marks, up from 2.8720/50. "If this pressure keeps up...There is a possibility that rates could drop before the Budget," said Jeremy Hale, economist at finance house Goldman Sachs International Corp. Some gilt traders are forecasting a half-point cut in the base rate from the current 11 pct as early as tomorrow. However, analysts said the Bank of England will need to be convinced that the present rise is a fundamental re-rating rather than a result of short-term speculative gains. There are valid reasons for the Bank to be cautious, said Peter Fellner, U.K. Economist at brokers James Capel and Co. Markets have become highly optimistic about the chances of a Conservative Party victory in any early general election, and disappointment if Prime Minister Margaret Thatcher decides to hold back could lead to a decline in the pound and a setback for bonds, Fellner said. An election could be delayed until mid-1988, but most forecasts say it will be this year. Others note that the pound could yet prove vulnerable to oil price losses or a change of fortune for the dollar. However, analysts agree the Bank is largely trying to set the timing of a cut than holding out against one altogether. The authorities traditionally prefer a single sustainable rate move, one way or the other, to half points here and there. Some add the Bank will be influenced by signs that at least a proportion of the latest bout of sterling buying is long-term capital coming into the London market, notably from Japan. They argue that the pound is being perceived as a safer bet than the dollar, given the latters recent sharp falls and current political upheavals in Washington. The Bank may want to see another few points on the trade-weighted index before the Budget, argued Lewis. "But by then sterling should be firm enough to satisfy even the Bank of England," he added. The Bank declined to comment on its reasons for resisting pressure for a rate move before the budget, but banking sources said the authorities see the recent rise in sterling as more than just marking up by foreign exchange traders. Meanwhile, analysts noted the market ignored potentially harmful news on the trade front, today's figures showing that the current account deficit in 1986 was 1.1 billion stg. This was above previous estimates of the current account deficit and compares with a surplus of 2.9 billion stg in 1985. Fellner said that under more normal conditions this would have given the bond and currency markets a pause, but that they were too bullish to worry about such fundamentals. The guessing game over the timing of a cut has the clearing banks divided as well as the markets. Privately, some bank officials forecast the Bank will hold out at least for this week, but at least one bank says a rise is possible tomorrow. If a move comes before March 17, forecasts are for a half-point cut, with another half or full point about Budget day.