Chancellor unmoved by sterling concerns

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The Independent Online
THE Iron Chancellor toughed out criticism from MPs and pleas for action from industry yesterday as concern mounted about the strength of the pound. Accused by one Labour MP of "complacency" as sterling reached a ten-year high on the foreign exchanges, Gordon Brown said the Government had done all it should to keep the pound "stable and competitive in the medium term"

The Chancellor's fighting talk, as he faced the House of Commons Treasury select committee, will pile the pressure on the Bank of England when its Monetary Policy Committee (MPC) meets next week.

While Mr Brown insisted that he had every confidence in the Governor of the Bank of England and the MPC, it is no secret that Treasury officials believe that if the Bank had raised interest rates further faster, the upward pressure on the pound would now be less severe.

Mr Brown said: "We inherited a situation where inflation was starting to rise and the economy was essentially unbalanced between consumer spending and industry." But the Government had "got it absolutely right" in its first two Budgets.

"This Government has made its contribution to rebalancing the economy," he said. Challenged by Quentin Davies, the Conservative MP for Grantham, as to whether he had been tough enough, Mr Brown said: "We have taken action. We took pounds 17bn out of the economy in the biggest fiscal tightening since 1981, and you are saying that is not enough." Brian Sedgemore, Labour MP for Hackney, suggested Mr Brown was being complacent. The Chancellor said he understood the worries of exporters, but industry, like government, would have to take a long term view. "I do not think it would be right for us to be diverted from our long term objectives by short-term pressures which, if we gave in to them, would merely return us to the stop-go of previous years."

Business wanted more stability in the economy, he said, and that is what they would get.

Exporters have been growing increasingly vocal about the impact the rising pound is likely to have on their business. Adair Turner, director general of the Confederation of British Industry, said yesterday: "We are at the point where any further increases in the value of the pound will be a serious problem for parts of the export sector."

He accepted that the March Budget had been tough enough, but said industry hoped for a clear signal from the Bank of England that interest rates would go no higher.

"We would like the Bank of England to get to a position where they can signal that the next move in interest rates is down," he said.

The MPC has been split since January over whether or not to raise the cost of borrowing any further in order to slow the economy and keep inflation on target.

The pound climbed above DM3.10 during yesterday's trading, its highest for more than ten years.

Sterling soars, page 20