Is Osborne right to warn about sterling now?
Peter Hoskin 1:51pm
So, George Osborne's unveiled his new line of attack on the Government - warning that, in light of sterling's recent plunge, Brown's addiction to debt could trigger a run on the pound. It's a prognosis not entirely without basis, but is now the right time to make it, politically? After all, the trends aren't currently heading in the direction of the Shadow Chancellor's worst-case scenario, and the devaluation of sterling could even result in a few benefits. Gary Duncan puts it best in today's Times:
"How much does any of this really matter? There are two main dangers. First, as Mr Osborne argues, a weak pound that makes it even less attractive to invest in Britain could make it harder for the Treasury to borrow in the markets by selling government bonds. In turn, that means that it may end up having to pay more to finance surging government borrowing.Secondly, a weak currency risks igniting inflation by driving up the nation’s import bills.
For now, however, while the pound’s fall is sharp, it is not unprecedented and the threat to Treasury fundraising remains limited. Nor is the second problem a real headache for now. Inflation is set to tumble. In a recessionary climate, businesses are unlikely to be able to pass on the higher cost of imports.
Crucially, a weaker pound will actually help to bolster the economy, making British exports more competitive. As other economies revive, this ought, eventually, to allow an export-led recovery. Provided that the pound does not collapse in a destabilising and disorderly way, its slide can be seen as a tonic, not a torment."
In light of this analysis, the worry for Osborne is that he's pulled this attack out of the locker too early. The shadow chancellor's right to have concerns about the pound, but by voicing them now he is - rightly or wrongly - open to the accusation that he's encouraging the "torment" scenario rather than the "tonic" scenario. If the Guardian's latest dispatch from inside Team Brown is anything to go by, that's a charge the PM will be making shortly.
UPDATE: And sure enough, here's the PM...
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Short the UK
November 15th, 2008 3:54pm Report this commentI would ignore the Times. Their coverage of the Crunch has been very poor.
I think you have to listen to the Doomsters.
I am picking up that the GBP will see parity with USD. That will be bad enough.
As to the Euro we could see 80 cents. If you look at a chart you will see we are about to break long term support.
This will be similar to Iceland.
We will find the importation of food and other goods will rocket. This will be a serious tax on our standrd of living.
I think the mainstream media are miles behind the curve of what is about to hit Britain.
Our country is technically bankrupt. Capital is heading home and Britain will find it extremely tough to find creditors.
This is a reality.
We are entering a global depression with a balance sheet that is broken.
I think that by the Spring we will be begging the IMF.
Keep an eye on Citigroup, the biggest bank in the world. They are in serious trouble.
This crash is still crashing.
JONNY
November 15th, 2008 4:42pm Report this comment'the worry for Osborne is that he's pulled this attack out of the locker too early.'
So the Pound's free-falling but it's not deemed 'good form' or patriotic to mention it abroad. Although the entire financial world knows it already. Or maybe we should wait until it's way down below dollar parity.
Would that be the right time to point out the peril we're in Peter Hoskin? When we can't afford to go abroad are we allowed to mention it then?
Or should we continue to keep stumm because it might upset Mr Brown?
Tiberius
November 15th, 2008 4:42pm Report this commentShort's doomsday warnings are starting to look as if they might happen. My employer's costs of imports will have risen 17% in euros in a year and 25% in dollars in three months once the forward contracts have expired. As these costs have been rising, there has been little coverage in comparison to the squeeze.
What I would ask Brown is at what point the Opposition can do its job without talking down the currency. Never? The Tories have kept quiet about it for some time, and are quite justified in raising this now that it is becoming critical.
But of course Brown calls the Opposition unfit to oppose when supportive of him, because they supposedly have no ideas of their own, and playing politics when they do oppose him. But never mind what he says - if he can no longer sell bonds, all the BS in the world won't be able to cover his abject failings.
oldtimer
November 15th, 2008 4:42pm Report this commentOf course he is right to draw attention to the risks that lie ahead for the government. He is not the only one, nor the first, to have done so - just the one that has attracted the bigger headline.
Of greater interest is how the reported differences between Nos 10 and 11 will work out. My reading of Mr Osborne`s remarks is that he is waiting to hear just what is in Mr Darling`s statement before offering a defninitive comment. Will we finally get a figure for the national debt? Will the tax bribe be £15bn or some more trifling sum?
It matters a great deal because I agree with Short the UK that worse is to come.
Dr. Julian P. Keogh
November 15th, 2008 4:57pm Report this commentTHe conservatives hould be worried about this Osborne chappy. When the Liberal Democrats have people like Vince Cable around, the question surely arises, why doesn't the Conservative party have someone anywhere near as shrewd at the helm of the shadow chancellory. They really seem to have no clue what to do apart from react. God help us if these guys get in, unless they can somehow win over the support of Vince Cable.
Summer
November 15th, 2008 5:25pm Report this commentUmmmmmmmmmmmmmm what exports? Just what exactly do we export, and how will be make it anyway with firms closing and international organizations pulling out.
Yes, it's about time someone told the truth. Do you give Mr Osbourne so much credit that just a statement like this would cause a run on the pound by foreign investors?
What a complete joke of an excuse. Don't you think that it's Brown's policies that are the cause of the pound's fall? Don't you think investors are sensible enought to make up their own mind? And don't you think they have.
The only people who don't seem to know are the British people. Now at least Mr Osbourne has told them the truth. Something you media fools don't seem able to do.
Why don't you ask more questions about the run on bank shares due to leaks to the BBC's Robert Peston, now being investigated!!!
TrevorsDen
November 16th, 2008 10:53am Report this commentI cannot take seriously anyone who talks of 'Team Brown' or Team Cameron.
There was me thinking the Spectator was talking sense for once and up comes quibblin' 'oskin.
kinglear
November 16th, 2008 3:21pm Report this commentDr.J.P.Keogh - are you Vince's mother? He's an ex-banker. Osborne knows more about economics and markets than Brown and Darling ever will.
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