By Robert Harris

PLANS to put further pressure on government to tackle the strong Pound are gathering pace.

Two weeks ago, the NFU revealed it had teamed up with representatives from UK manufacturing industries to lobby the Treasury.

Details of how the alliance plans to do this are now emerging.

“We are changing tack,” says Sin Roberts, NFU chief economist. “We have been repeatedly lobbying Eddie George at the Bank of England.

“The trouble is, he always comes back with the same answer the monetary policy committee has one remit, to control inflation.”

Unfortunately, the only way it can so this is by altering interest rates. If, as recently, rates rise, Sterling becomes more attractive to investors, and it strengthens against less attractive currencies, notably the Euro.

This makes imports cheaper, exports more costly and cuts Euro-based subsidy payments.

But, says Mr Roberts, there are two sides to economic policy.

“There is monetary policy, which the Bank of England controls, which directly affects exchange rates. Then there is fiscal policy government spending and taxation.

“This has an indirect effect on exchange rates, since it affects the decisions taken by the monetary policy committee.”

It is this second avenue on which the alliance is now concentrating.

Some Treasury decisions have already been identified as inflationary, which has put pressure on interest rates, says Mr Roberts.

“Several observers, including the International Monetary Fund and members of the monetary policy committee, pointed out that Gordon Brown loosened fiscal policy in the last Budget by 1.5-2%.

The undoubted conclusion was that this would lead to further increases in interest rates, and therefore the exchange rate.”

“We are using independent economic consultants to look at the implications of fiscal policy on the economy, and we will present the findings in mid-July, just before the Chancellors comprehensive spending review.”

Lobbying will be maintained through the autumn, when Mr Brown makes his pre-budget statement, and into the spring, leading up to what is likely to be a pre-election Budget.

“We all know the Chancellor has a huge budget surplus.

“While much of this may go to hospitals and education, there is also a big temptation to give money away in the form of tax cuts. That could boost consumer spending, putting further pressure on interest rates,” says Mr Roberts.

“Many industries are having an extremely tough time. Jobs have been lost, and more will go.

The government must take a balanced view in the next few months, and not risk fuelling inflation in the run-up to the next election.”