Newspaper article The Evening Standard (London, England)

Stronger Pound Will Hit Tourism and Businesses; COMMENTARY

Newspaper article The Evening Standard (London, England)

Stronger Pound Will Hit Tourism and Businesses; COMMENTARY

Article excerpt

THERE is an irony about the timing of Mervyn King's letter.

The Chancellor's 10-year policy of achieving growth without inflation is publicly shot down just at the point he's about to become prime minister.

While King's missive ismanna from heaven to the Opposition, the truth is that it's not unexpected.Last August, the Bank of England Governor said there would be every likelihood of him having to eat humble pie in the winter. With world energy prices as they are, it's a miracle such a letter has not been required before. What the Government is anxious to avoid is the sense of a threshold having been crossed permanently and the increase being passed on to wage demands.

If the unions can be held at bay, the signs are encouraging. The world oil hike has stabilised and King is predicting inflation will settle back down.

To help it on its way and to slow domestic demand, the monetary policy committee will almost certainly raise interest rates again.

The Governor is anxious not to overstate the importance of his letter. He is likely to resist a dramatic, halfpoint rate rise in May that, plus the letter, would be the most unwelcome start imaginable to the Brown premiership so a quarter-point rise should be deemed enough medicine for us to swallow. Other pressures remain. The pound's charge through $2, great as it is for anyone thinking of a shopping spree in New York, is bad news for our exporters and tourism.

Those businesses hit hard by the pound's rise include IT and those in the service sector, many of which are in the South-East.

Likewise, visitors from the US may flock to Stratford and the Lake District but they rarely do so without passing through London first. Numbers coming from the US, already low, are bound to fall still further striking hotels, attractions and West End stores.

THERE is an irony about the timing of Mervyn King's letter. …

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