... I _still_ get: \xc2\xa3

How do you tell?  Did you print it to somewhere, etc.?  What exactly do you finally want to achieve?

In case the idea is to convert the pound sign to Latin-1 encoding, you'd need to encode the decoded string again:

$v = encode('ISO-8859-1', $v);
[download]

Here's a complete example (note the differences in the PV representations in the 3 dumps):

#!/usr/bin/perl -w
use strict;
use Encode;
use Devel::Peek;

my $v= "%C2%A3";

$v =~ s/%([a-fA-F0-9]{2})/pack('C', hex($1))/eg;
Dump $v;

my $decoded = decode("UTF-8", $v);
Dump $decoded;

my $encoded = encode("ISO-8859-1", $decoded);
Dump $encoded;

__END__
SV = PVMG(0xf98470) at 0xf15d08
  REFCNT = 1
  FLAGS = (PADMY,SMG,POK,pPOK)
  IV = 0
  NV = 0
  PV = 0xf46af0 "\302\243"\0
  CUR = 2
  LEN = 8
  MAGIC = 0xf0f350
    MG_VIRTUAL = &PL_vtbl_mglob
    MG_TYPE = PERL_MAGIC_regex_global(g)
    MG_LEN = -1
SV = PV(0xeee388) at 0xf16080
  REFCNT = 1
  FLAGS = (PADMY,POK,pPOK,UTF8)
  PV = 0xfe40c0 "\302\243"\0 [UTF8 "\x{a3}"]
  CUR = 2
  LEN = 8
SV = PV(0xeee448) at 0xf16110
  REFCNT = 1
  FLAGS = (PADMY,POK,pPOK)
  PV = 0xfd44c0 "\243"\0
  CUR = 1
  LEN = 8
[download]