Martin Vander Weyer looks ahead to next week’s Pre-Budget Report and reflects on George Osborne’s contentious remarks about the devaluation of sterling. It looks like Gordon Brown is getting away with his borrowing binge — leaving the Tories isolated
On Monday afternoon I rang a distinguished City economist and asked him a rather technical question about the relationship between issuance of gilt-edged stock and movements in the dollar-sterling exchange rate. ‘Not really my specialist field,’ he replied suavely. ‘But I’ll give you my overview: George Osborne is a prat.’
And that, I’m afraid — expressed with varying degrees of bluntness or circumlocution — was pretty much the consensus of all the experts I spoke to this week about the shadow chancellor’s much-quoted remarks to the Times at the weekend: ‘We are in danger, if the government is not careful, of having a proper sterling collapse, a run on the pound… The more you borrow as a government, the more you have to sell the debt and the less attractive your currency seems.’
Sterling has in fact already lost a quarter of its value — from $2 to $1.48 — since July, and has reached a 13-year low against a basket of currencies. Whatever the underlying cause (urgent liquidation of hedge-fund positions by all available means probably had as much to do with it as any general wave of negative sentiment about the UK economy), you might think this already constitutes a ‘run on the pound’ which we should be worried about. In that sense Osborne is right to highlight it, as Cameron was perhaps right on Tuesday to abandon his pledge to match government spending plans. After all, the so-called convention that senior politicians should not mention the exchange rate for fear of ‘talking down the pound’ is no more valid, at a time of crisis, than that other convention, breached at Glenrothes by Gordon Brown as soon as he scented victory, that prime ministers do not campaign in by-elections.
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