ANALYSTS SEE EARLY ONE POINT CUT IN U.K. BASE RATE

  British bank base lending rates are
  likely to fall by as much as one full point to 9-1/2 pct this
  week following the sharp three billion stg cut in the U.K.
  Central government borrowing target to four billion stg set in
  today's 1987 budget, bank analysts said.
      The analysts described Chancellor of the Exchequer Nigel
  Lawson's budget as cautious, a quality which currency and money
  markets had already started to reward.
      Sterling surged on foreign exchange markets and money
  market interest rates moved sharply lower as news of the budget
  measures came through, the analysts said.
      Lloyds merchant bank chief economist Roger Bootle said he
  expected base rates to be cut by one full point tomorrow.
      "This is very much a safety-first budget in order to get
  interest rates down," he said.
      Bootle said the money markets had almost entirely
  discounted such a one point cut, with the key three month
  interbank rate down to 9-11/16 pct from 9-13/16 last night, and
  it would be rather conservative for banks to go for a
  half-point cut now.
      Midland Bank treasury economist David Simmonds said he,
  too, expected base rates would be a full point lower by Friday,
  but this would likely happen via two half-point cuts.
      "This budget is designed to please both the markets and the
  electorate. The implications for interest rates are very
  favourable, we could have a half-point cut tomrorow and another
  such cut before the end of the week," Simmonds said.
      Pointing to buoyant U.K. Retail data released yesterday, he
  said Lawson had done well to resist pressures for a sharp cut
  in income tax rates at the expense of a lower borrowing target.
  "There is no real need to boost private consumption," he said.
      National Westminster Bank chief economist David Kern said
  the lower borrowing target set in the budget had increased the
  likelihood of an early one-point base rate cut.
      Kern said the budget would have to be analysed carefully,
  in particular to see how exactly Lawson planned to achieve the
  sharper than expected borrowing target cut, before a one-point
  base rate cut could be implemented.
   But providing the budget small-print was convincing, "and I
  suspect it will be, it is entirely possible that we see one
  point off base rates by the end of this week," Kern said.
      Bootle of Lloyds said the expected base rate cut would pave
  the way for an early one-point cut in mortgage lending rates.
  This would help achieve Lawson's lower than expected consumer
  price inflation target of four pct at end-1987, he said.
      U.K. Base rates were cut last week to 10-1/2 pct from 11
  pct after sustained pressure from the foreign exchange, money
  and government bonds (gilts) markets.
      But building societies said they would not cut lending
  rates until base rates had fallen by one full point.
  

