ALISTAIR DARLING will this week try to restore confidence in Britain’s economy and the pound by saying the government has not abandoned its budgetary rules.

Sterling took a battering last week, with gloomy growth figures pushing the pound below $1.53. It closed at $1.59 on Friday. Experts now believe it could fall further, to $1.40 or lower, in coming weeks.

The chancellor will try to halt the slide by saying he will stick to plans that assume a slowdown in the growth of public spending.

Treasury officials fear that reports of ministers wanting a public spending boost to tackle recession, coming on top of commitments they have made to prop up banks, have helped to depress sterling.

City brokers said yesterday that American and Swiss funds were dumping the pound “and anything denominated in sterling”, with the sell-off driving down both sterling and the stock market.

Friday's slump was said to have been brought about partly by American investors shorting the FTSE index overnight, following huge falls in Asia on Thursday. Market sources said trading volumes for the FTSE one-day future contract were about 50% higher on Friday than the average over the past 20 days.

Some market analysts now think there could be a brief rally in the FTSE 100 before it bottoms out at 3,000. It closed on Friday at 3883.6.

Darling’s insistence on budget discipline will come when he delivers the delayed annual Mais lecture at City University on Wednesday.

He will say that the slowdown has had a faster impact on the public finances than past downturns by hitting stamp-duty receipts and the financial sector. The Treasury expects virtually no tax revenues from banks and other financial-services groups this year.

Officials do not believe the budget deficit will get close to the level of the early 1990s, when it reached nearly 8% of the economy.

Economists said that while Friday’s gloomy third-quarter figures for gross domestic product, showing a drop of 0.5%, had hit the pound, there could be a silver lining in them.

“The figures didn’t surprise me,” said Gerard Lyons, head of research at Standard Chartered.

“The recession will be significant and it will last for four quarters. But the size of the fall we’ve already seen will spark policymakers into action.”

Analysts surveyed this weekend by Ideaglobal.com, the financial-research company, are virtually unanimous that the Bank of England will cut interest rates by half a point when the monetary policy committee (MPC) meets on November 5-6. A minority expects an even larger cut, one of three-quarters of a point.

Chris Turner, head of foreign-exchange strategy at ING Financial Markets, said that the pound could fall to $1.40 in coming weeks.

Mansoor Mohi-Uddin, head of foreign-exchange strategy at UBS, says in The Sunday Times today that investors should consider “at a minimum” the pound reaching $1.38.

Economists at Barclays Capital think the pound’s slide is overdone and see a gradual rise back to $1.89 over the next 12 months.

Meanwhile new research by the Federation of Small Businesses shows fear spreading among entrepreneurs about their livelihoods in a recession.

A survey of 8,600 members found 35.7% were worried their home would be under threat if their business collapsed. Some 13.2% believe they would have to be declared bankrupt.

In a worst-case scenario, the Forum of Private Business predicts that as many as 200,000 companies could go under during this recession, many of them because bank financing is not being made available quickly.

European and Asian leaders presented a united front at a summit in Beijing yesterday, saying that they would make a co-ordinated effort to tackle the crisis.

“We must use every means to prevent the financial crisis impacting growth of the real economy,” said the Chinese prime minister, Wen Jiabao.

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