Margaret Thatcher warned John Major that keeping the UK in the European exchange rate mechanism (ERM) and refusing to cut interest rates put the UK economy at risk, according to newly-released archives.

At a meeting in January 1991, Thatcher told Major that maintaining high interest rates to keep the UK in the ERM risked replaying Churchill's decision to fix the parity of the pound at a high level, a move which has been blamed for exacerbating the Great Depression.

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The minutes of the meeting released from the National Archives said: "Ms Thatcher said conditions in the economy were very tough indeed. She believed that there was a danger of repeating Winston Churchill's historic error."

However, Major rebuffed Thatcher, saying that the "current situation was not remotely comparable", according to the files.

The ERM was a mechanism which fixed the exchange rates between members of the European Economic Community ahead of the creation of a single currency.

The UK was forced out of the ERM on 16 September 1992, later known as "Black Wednesday", when the government was unable to defend the price of sterling.

In an attempt to attract investors, the government hiked interest rates from 10 per cent to 15 per cent. However, traders continued to sell off the pound and the UK was out of the ERM by the evening.

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