Gordon Brown's rate dilemma

Exporters want weaker pound

A group of leading British exporters plan to lobby the new Labour government to act quickly to quell the strength of sterling.

The group, which is thought to have the backing of the CBI, will try to persuade Gordon Brown, the incoming Chancellor, not to raise interest rates early in his tenure to dampen a consumer boom in the economy. Instead, the exporters want him to look at tightening fiscal policy.

The Chancellor confirmed at the weekend that he would be meeting Bank of England Governor Eddie George for the first time on Wednesday.

In recent months, a number of British companies - particularly those that export to Germany - have reported depressed results and issued profits warnings as a result of sterling's strength against the mark. The pound has gained 2.5 per cent against the mark during the election campaign and closed on Friday at DM2.80.

Chief among these companies is British Steel, which announced in March that it was accelerating its job-shedding programme to 1,000-a-year from 500-a-year. Brokers have since cut profit forecasts for the coming year to pounds 140m, and the shares have lost 15 per cent of their value.

A British Steel spokesman said that the company had no plans at the moment to lobby the Blair government on interest-rate policy but added that the company "may say something next week".

Other exporters that are suffering from sterling's strength include ICI, Vickers, SmithKline Beecham, and British Aerospace. On Friday, ICI chairman Sir Ronnie Hampel called on the new government to pay attention to this "pressing problem". He said: "The strength of sterling is posing growing problems to manufacturing industry ... This needs to be fully taken into account by the new government as it plans its policies."

City economists believe that industry is looking for Chancellor Gordon Brown to raise taxes instead of interest rates to take some heat out of both the economy and the pound.

But they add that the Chancellor will face a difficult decision. Some economists are now calling for rises in taxes rather than interest rates to restrain demand and inflation without running the risk of boosting sterling to an unsustainable level.

"I can't see how we can avoid the danger of higher inflation without tighter fiscal policy. Even if interest rates go up to 8 per cent, that may not be enough,'' said Michael Dicks, economist at Lehman Brothers.

While Labour fought an electoral campaign saying it would not raise income taxes, it could still increase revenue through indirect and corporate taxes.

"They could abolish Miras (mortgage interest relief at source), shift allowances on income taxes, freeze or cut a number of allowances,'' suggested Mr Dicks.

If Labour ignores the overvalued pound, it might eventually be forced into a politically damaging devaluation mid-term in the same way that the Wilson, Callaghan and Major governments were morally wounded in 1967, 1976 and 1992. It would be ironic if New Labour is so zealous in its pursuit of monetary rectitude that it brings the fate of its predecessors upon itself.

Other economists are more circumspect. Kit Jukes, European economist at NatWest Markets, said emerging confidence in Labour's economic policies would make the threat of large-scale interest-rate rises recede, at least for the rest of the year.

peopleBenjamin Netanyahu trolled by group promoting two-state solution
Arts and Entertainment
Kylie performs during her Kiss Me Once tour
musicReview: 26 years on from her first single, the pop princess tries just a bit too hard at London's O2
Life and Style
fashionEveryone, apparently
The erotic novel Fifty Shades of Grey has already been blamed for a rise in the number of callouts to the fire brigade for people trapped in handcuffs
voicesJustine Elyot: Since Fifty Shades there's no need to be secretive about it — everyone's at it
Arts and Entertainment
A new Banksy entitled 'Art Buff' has appeared in Folkestone, Kent
Life and Style
Playing to win: for Tanith Carey, pictured with Lily, right, and Clio, even simple games had to have an educational purpose
lifeTanith Carey explains what made her take her foot off the gas
Arts and Entertainment
The White Sails Hospital and Spa is to be built in the new Tunisia Economic City.
architectureRussian billionaire designs boat-shaped hospital for new Dubai-style Tunisia Economic City
ebooksAn unforgettable anthology of contemporary reportage
Husain Abdullah returns an interception off Tom Brady for a touchdown
nflLeague has rules against 'sliding to ground on knees'
Arts and Entertainment
Critics say Kipling showed loathing for India's primitive villagers in The Jungle Book
filmChristopher Walken, Bill Murray, Scarlett Johanssen Idris Elba, Andy Serkis, Benedict Cumberbatch, Cate Blanchett and Christian Bale
Life and Style
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

SQL Developer (Stored Procedures) - Hertfordshire/Middlesex

£300 - £330 per day: Ashdown Group: SQL Developer (Stored Procedures) Watford...

Day In a Page

Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?
Royal Ballet star dubbed 'Charlize Theron in pointe shoes' takes on Manon

Homegrown ballerina is on the rise

Royal Ballet star Melissa Hamilton is about to tackle the role of Manon
Education, eduction, education? Our growing fascination with what really goes on in school

Education, education, education

TV documentaries filmed in classrooms are now a genre in their own right
It’s reasonable to negotiate with the likes of Isis, so why don’t we do it and save lives?

It’s perfectly reasonable to negotiate with villains like Isis

So why don’t we do it and save some lives?
This man just ran a marathon in under 2 hours 3 minutes. Is a 2-hour race in sight?

Is a sub-2-hour race now within sight?

Dennis Kimetto breaks marathon record
We shall not be moved, say Stratford's single parents fighting eviction

Inside the E15 'occupation'

We shall not be moved, say Stratford single parents
Air strikes alone will fail to stop Isis

Air strikes alone will fail to stop Isis

Talks between all touched by the crisis in Syria and Iraq can achieve as much as the Tornadoes, says Patrick Cockburn
Nadhim Zahawi: From a refugee on welfare to the heart of No 10

Nadhim Zahawi: From a refugee on welfare to the heart of No 10

The Tory MP speaks for the first time about the devastating effect of his father's bankruptcy
Witches: A history of misogyny

Witches: A history of misogyny

The sexist abuse that haunts modern life is nothing new: women have been 'trolled' in art for 500 years
Shona Rhimes interview: Meet the most powerful woman in US television

Meet the most powerful woman in US television

Writer and producer of shows like Grey's Anatomy, Shonda Rhimes now has her own evening of primetime TV – but she’s taking it in her stride
'Before They Pass Away': Endangered communities photographed 'like Kate Moss'

Endangered communities photographed 'like Kate Moss'

Jimmy Nelson travelled the world to photograph 35 threatened tribes in an unashamedly glamorous style