Pound rebounds despite Osborne's warning

Sterling rose against the dollar in early trading today, despite forecasts by George Osborne, the Shadow Chancellor, that higher government borrowing could lead to a run on the currency.

The pound recovered to $1.4924 on Monday morning, after closing at $1.4855 on Friday before Mr Osborne's comments emerged in The Times that sterling was heading for "a collapse" if Gordon Brown attempted to borrow his way out of recession. Against the pound, the euro was unchanged at 0.857.

Mr Osborne later defended his remarks against accusations that he was talking down sterling. "My job... is to tell the British people the truth about the British economy," he said, in a TV interview.

Lord Mandelson, the Business Secretary, today piled further pressure on the Shadow Chancellor by accusing him of being "irresponsible and reckless" in his comments about the pound.

The peer told the BBC's Today programme: "We haven’t heard an alternative from the Conservatives. If you exclude further borrowing all you’re left with is sitting on your hands, as the Conservatives seem to be, doing nothing about it.

"Osborne was trying to undermine the confidence of markets, undermine the confidence of traders. It was reckless and irresponsible…and quite contradictory. Their policies change every week."

In his interview on Saturday, Mr Osborne highlighted a 30-per cent fall in value of the pound over recent months against a basket of currencies, and said that Government policies were creating the "danger of having a proper sterling collapse, a run on the pound".

He was accused of ignoring a convention that senior politicians do not "talk down the pound" - but yesterday dismissed the idea that he would be to blame for any further falls

"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," he said.

"They are looking at the fundamentals and they are making a judgment about the British economy. They are making a judgment that we are worse placed than other economies - the US and some other European countries."

Speaking at the G20 summit in Washington, where world leaders committed themselves to a recovery "route map" involving pumping more money into their economies, Gordon Brown weighed in on the criticism of the Shadow Chancellor, saying that he "regretted the partisan talk from the Opposition".

"I believe that at a time when nations are coming together all over the world to deal with these problems, I think people are looking to politicians to be responsible and to show leadership," he said.

Alistair Darling, the Chancellor, also told Sky News: "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."

Mr Osborne’s position is also considered to have been weakened by a lack of vocal support from David Cameron. The Shadow Chancellor was also forced to dismiss suggestions that his authority had been undermined because Mr Cameron had called in Oliver Letwin, his predecessor, to draw up potential government spending cuts.

Meanwhile, a significant party donor, the retail millionaire Lord Kalms, called for Mr Osborne to be replaced with a "heavyweight" figure.

But the Shadow Business Secretary, Alan Duncan, rallied around his frontbench colleague, saying he was "absolutely right" to raise the danger of a run on sterling. "I’d rather have George Osborne telling the truth than Gordon Brown charging around the world on a journey of deceit," he said.

Martin Waller