I am really curious what would have happened if the British Government bought DM as well during this period (and maybe not disclose it?) Then they would exit the ERM, and the pound would fall and they would exchange all their money back to sterling and would be rich... :/ I know my logic has a mistake in it... it can't be that simple :P
The British Government had DMs, that's what they sold trying to keep their currency at fixed rate. You say they should have kept Deutschmarks to sell them later for what? For depreciated sterling pounds? It doesn't make sense, the only thing that a government has plenty of is its own currency. Governments are "rich" in their own printed stamps, the challenge is to keep those stamps valuable. That's what the British Government was trying to do.
