With the pound rising to a peak of DM3.0966 - its highest level since 1 August 1989, Labour MPs are becoming alarmed at the threat of a recession.
The Chancellor will be questioned a meeting of the cross-party Commons select committee on the Treasury. The MPs will question Eddie George, the Governor of the Bank of England, on Thursday about his interest rate policy, which is helping to drive the pound higher.
Treasury officials appalled some Labour members of the committee when they seemed unable to offer any solution to the threat to British jobs posed by the exchange rate pricing British goods out of foreign markets.
Tony Blair last week spoke of the "very high" exchange rate, but the Treasury has made it clear that it cannot intervene in the market. The Prime Minister met trade union leaders at Downing Street to discuss the effects of the Budget.
John Redwood, the Tory spokesman on trade, last night warned that sterling could go higher, through a further increase in interest rates.
"We have had poor money supply figures today and people are expecting a further hike in interest rates. The money markets think they have a one-way bet on sterling.
"This is very big stuff and it is going to have a dramatic impact on the economy." Mr Redwood said the rise in the value of the pound showed that giving the Bank of England independence was a mistake, and should be reversed. Some Labour MPs fear that the Government could face difficulties next year if the continued fall in unemployment under the Tories was reversed.
Hints last year that the Government would seek early entry of the pound into the European single currency helped to depress the value of sterling, but that was short-lived. The drive of the other currencies into the single currency while Britain remains outside is contributing to the rise.
The former Tory Chancellor Kenneth Clarke is today expected to join calls to stop fudging the figures on a single currency. He will use a speech in Paris to insist that countries allowed to join the euro-zone while glaringly adrift from the qualifying rules should be forced into line.
Mr Clarke, who when in office questioned the prospect of a successful euro launch by the 1999 deadline, wants Belgium and Italy to deliver firm pledges to lower their huge government debt levels.Reuse content