The Shadow Chancellor told The Times yesterday that increased public borrowing was already making the currency “less attractive” and there was a risk of a “run on the pound”.
His comments have been criticised by business leaders as well as by Alistair Darling, the Chancellor, and Vince Cable, the Liberal Democrats economy spokesman.
With the currency markets due to reopen tomorrow morning, Mr Osborne dismissed suggestions that he had “talked down the pound”, however.
What the markets are doing (is) looking at the economic fundamentals. They are not looking at what politicians – be it myself or indeed any other politicians – are saying. These are hard headed market operators.
“My job as Shadow Chancellor is to tell the British people the truth about the British economy. The truth that it is the worst prepared economy in the world for recession,” he told BBC One’s Andrew Marr show.
He said there was a “striking lack of confidence” in sterling on currency markets and that higher debt was a “bombshell” beneath any future recovery.
In the absence of public backing from Mr Cameron on the sterling warning, Mr Osborne faced questions over his relationship with the Conservative leader. Speculation that his role has been diluted in the wake of the Oleg Deripaska affair continued over the weekend with a report that Oliver Letwin had been asked to draw up a package of potential spending cuts.
He said he was “working very closely all the time” with Mr Cameron, but refused to say whether Mr Cameron had given him an “absolute” assurance that his job was safe.
Senior aides insist that the Tory leader will endorse his shadow chancellor’s warning on sterling when he launches a new attack on the Government’s economic policies early this week.
Mr Darling sought to turn up the pressure on his shadow querying his judgment and insisting that it was “utterly pointless to offer a running commentary” on the pound.
“All I would say is this, that a few weeks ago the Tories offered a bipartisan approach, now that has clearly gone to the wind.
“At a time like this, this is when we at home and when we with other countries across the world should be working together, that is what people expect and that is what I intend to stick to. It is for others to decide what what they are going to do.
“I do worry and wonder about their judgment here. Only a few weeks ago David Cameron said and he was asked specifically was it right to let borrowing rise to support the economy at a time like this and he said yes you would expect borrowing to go up.
“Within a day they said that was the wrong approach – they completely changed tack. What I find difficult to understand, inasmuch you can discern what the Conservatives’ policy is at the moment, where exactly they stand.”
