Cooper Says U.K. Government Doesn’t Target Pound Rate

By Craig Stirling

Dec. 14 (Bloomberg) -- U.K. Treasury Chief Secretary Yvette Cooper said the government doesn’t target the pound and Europe Minister Caroline Flint raised the prospect of a halt to the currency’s slide after it reached a record low against the euro.

“We’ve never had a policy of targeting the pound,” Cooper told the BBC’s Andrew Marr show today. “Our policy is to target inflation, and that I think has been the right one. It has paid off over the last 10 or 11 years.”

The pound has dropped 22 percent against the euro this year on mounting evidence that the recession is intensifying. Prime Minister Gordon Brown’s government, which has cut taxes and rescued banks to combat the financial crisis, faces increasing pressure to comment on the currency as it extends its decline.

“The exchange rate obviously is affected by what’s happening at the moment,” Flint told Sky News. “We’ve got to get those first-order issues right in order to have a better look at issues around the exchange rate, which may stabilize if we get those other factors right.”

The pound fell to 89.97 pence per euro on Dec. 12, the lowest level since the euro’s debut in 1999. The British currency has dropped 25 percent against the dollar this year.

“We don’t, as ministers, ever do running commentaries on the currency, on the pound, I don’t think that’s the right thing to do,” Cooper said. “The purpose of what we do is to support the economy overall and to make sure as well that we work with other countries to do that.”

Export Boost

The British currency’s drop has “different impacts on different sections of the economy” and may benefit exporters, Cooper said. Manufacturing dropped for an eighth month in October, extending the longest stretch of declines since 1980.

“Of course it’s the case that there is volatility on the currency markets, which reflects the uncertainty in the world economy,” Cooper said. “I think we’re plotting the right course in terms of making sure inflation is coming down but particularly the action to support to the economy, to support jobs and to help us come through this.”

Brown said last week that the government is working on the “second stage” of a rescue for banks, which are reluctant to lend even after the government pledged 50 billion pound of public money to bolster their capital. He also promised a 20- billion pound ($30 billion) stimulus package on Nov. 24, the biggest in two decades, reducing sales tax to spur spending.

“You might as well have burnt the money and thrown it away frankly,” former Prime Minister John Major said on the tax cut in an interview with on the Andrew Marr show. “I don’t think it’ll do anything that is credible at all.”

1992 Crisis

Major presided over the U.K.’s last currency crisis in 1992, when speculators bet on the pound’s exit from the peg against other European currencies. His government was forced to abandon the effort to keep the currency within its limit set by the European Exchange Rate Mechanism.

“You will recall previous attempts to target exchange rates, for example through the Exchange Rate Mechanism, that were not successful and caused all kinds of problems,” Cooper said today.

Asked about the threat of deflation, she said that it is “something that commentators have been talking about, and that’s why I think we’ve been so clear about the importance of stepping in to support the economy.”

To contact the reporter on this story: Craig Stirling at cstirling1@bloomberg.net