But textbook economics says that this mix of tight fiscal and loose monetary policy should cause the exchange rate to fall. This is because austerity tends to depress economic activity and hence the demand for money, while loose monetary policy increases the supply of it. Lower demand and higher supply should mean a lower price of money - a lower exchange rate. The prospects for sterling, says James Knightley at ING Bank, are "biased to the downside".
The Bank of England is relaxed about this. It has said that the UK's large current account deficit at a time of high unemployment is a sign that sterling is overvalued.
Strictly speaking, the government should be relaxed, too. The same textbook models that say fiscal conservatism and monetary activism weaken the exchange rate also imply that fiscal policy has no effect upon output, precisely because the fall in the currency increases net exports, thus offsetting weaker domestic demand. But it is unlikely that Mr Osborne will use his Budget to welcome sterling's fall, partly because to do so would mean taking blame for rises in prices of oil and imported food.
