In the first week of the Coalition government, whilst their minds were elsewhere, Labour’s policy of devaluation and higher prices continued. Sterling fell against the dollar and other important currencies like the yen. The Coalition government reached agreements which included some increases in public spending which were specific, but has yet to spell out how much further and faster it plans to go in deficit reduction.
There are three main options to change course on inflation and devaluation. Most helpful would be an early statement of the new trajectory for deficit reduction whilst they work out the detailed spending plans. The bigger the cut in the deficit this year the better it will be for seeing off a falling pound and higher prices.
Secondly, they could announce they will not be resuming the Labour policy of money printing to provide cheap finance for a public sector spending led recovery. This policy clearly is not working and is unaffordable.
Thirdly, they could raise official interest rates to bring them more into line with private sector reality and borrowing costs.
I would recommend doing numbers one and two immediately.