July 22, 2003	Tuesday	Jumadi-ul-Awwal 21, 1424

LONDON, July 21: The pound fell to a three-month low against the dollar briefly on Monday as financial markets fretted over a crisis engulfing British Prime Minister Tony Blair after the death of a government arms expert.

The pound dropped to as low as $1.5781 at the start of the week in Asia, where thin volumes owing to a Japanese public holiday exacerbated the move, analysts said.

But sterling later recoupled its losses to stand at 1.5910 dollars, against $1.5901 late on Friday in New York.

The euro rose to 0.7141 pounds, before easing back to 0.7088.

Sterling wobbled after Blair faced calls for his resignation amid a growing uproar over the death of arms expert David Kelly.

The BBC confirmed the former UN weapons inspector, who was found dead on Friday after apparently committing suicide, was the principal source for its controversial report in May that the government had “sexed up” evidence on Iraq’s weapons capabilities.

The selling of the pound as speculation of further monetary easing by the Bank of England mounts is being compounded by the political fallout from the suicide of the Ministry of Defence’s weapons expert, who was drawn into the row between the government and the BBC, said Bank of Tokyo-Mitsubishi economist Derek Halpenny.

We doubt Prime Minister Blair will have to resign, but the financial markets correctly sense that this issue may drag on for some time.

The judicial inquiry is expected to last many weeks and will damage the credibility of the government, he wrote in a note to clients.

Blair, speaking in Beijing on an East Asia tour, promised to “cooperate fully” with a judicial investigation and even give evidence in public if the judge leading the probe, Lord Hutton, requests it.

With the prime minister in the firing line, sterling could continue to be remain under pressure, analysts warned.

While we do not wish to exaggerate the situation, we should be aware of the potential consequences of the crisis, including the possibility of the situation escalating and undermining the government’s position, the risk of a weakening in sterling and a potential impact on confidence, Deutsche Bank economists said in a research note.—AFP