U.K. RESERVES LIFT HOPES OF FURTHER BASE RATE CUT The record 4.9 billion dlrs rise in U.K. Reserves in May to a total 34.7 billion has lifted hopes for a further cut in bank base lending rates after the June 11 general election, market analysts said. Sterling would have risen on the much better than expected number but for market nerves about the poll outcome, they said. But the weight of foreign currency and gold reserves now available to the authorities to support the pound should curb any market tendency to panic if U.K. Opinion polls show the ruling Conservative Party's lead slipping, they added. "We have been intervening to a very much greater extent than we have done hitherto," Chancellor of the Exchequer Nigel Lawson said at a news conference today, commenting on the news of the record reserves rise. He put the U.K. Intervention in the context of the Louvre accord between leading industrial nations to stabilise the dollar, partly through direct intervention on foreign exchanges. "We have been playing a very full part ourselves," he said. But market analysts see the recent upward pressure on sterling, and consequent need for official sales to damp down its rise, more in the light of local factors. Steven Bell, chief economist at Morgan Grenfell Securities, said that corporate money has been flowing back into Britain amid hopes of another Conservative government, after fears last autumn of a Labour election victory sent it flooding out. U.K. Portfolio investment is also returning, while foreign buyers see U.K. Growth propects and high bond yields as attractive. They will be strong buyers of U.K. Assets, notably equities, once the election is out of the way, Bell said. Analysts see this pressure as the main hope for lower interest rates, as the government is expected to try to reverse the loss of export competitiveness caused by a strong pound. Today, however, the pound hardly moved on the reserves news, dipping on its trade-weighted index against a basket of currencies from 73.1 pct of its 1975 value at 1000 GMT to 73.0 pct at 1100 GMT, half an hour after the figures were released. "The market doesn't want to do anything because of the election," commented an economist at a big U.S. Investment bank. Several dealers and analysts added that market forecasts of a rise in reserves of between one and three billion dlrs had overestimated the amount of pound sales that were likely to have been disguised by swap arrangements or transactions on the forward market. The market also seemed to have overestimated the amount of sterling the Bank of England bought at the end of May to smooth the pound's sudden downturn, while some of the intervention reported in May probably occurred in April, they said. The key three months interbank money market rates eased about 1/8 point, reflecting cautious hopes that the downtrend in U.K. Interest rates will be revived following the reserves news, analysts said. Government bond prices initially firmed, but the market was muted as traders worried about the funding implications of another huge rise in reserves, they added. Morgan Grenfell's Bell forecast a half point base rate cut from the current nine pct level soon after the election, so long as poll projections of another Conservative victory prove accurate, with another half point later. Justin Silverton, equity economist at Credit Suisse Buckmaster and Moore, said a full point reduction might be possible. "Sterling will be held down by interest rate cuts in future, rather than this active intervention," he predicted. Kevin Boakes of Greenwell Montagu Gilt-Edged cautioned against over-optimistic forecasts, but agreed a half point cut looked likely. A cut before the election has been virtually ruled out. "The Bank (of England) is both worried about the political problem of cutting rates during an election campaign ... And has signalled some worry about broad money (growth)," said Robin Marshall, chief U.K. Economist at Chase Manhattan Securities. He said the 10 billion dlrs increase in total reserves in the past seven months may foreshadow full U.K. Entry into the European Monetary System. But Bell said the authorities would like to see another 10 or 15 billion dlrs in the reserves before joining, if they did so. But, unlike many analysts, he doubted the U.K. Will go in.