If the strength of a country’s currency is often taken as a national virility symbol, then the fortunes of the pound in recent weeks suggest that Britain’s economic potency is fading fast.

Little wonder, then, that George Osborne, the Shadow Chancellor, has seized on sterling’s freefall in recent days as a powerful political weapon with which to lash Labour’s economic record.

His attack on Gordon Brown and Alistair Darling is made all the more telling in the public imagination by now-hazy memories of “runs on the pound” under the Labour governments of the Sixties and Seventies, and Harold Wilson’s notorious 1967 “pound in your pocket” speech, justifying that year’s devaluation of sterling. Mr Osborne surely hopes to make sterling’s latest slump an equally telling emblem of Labour economic failure.

A more cynical interpretation is that the Shadow Chancellor is seeking to deflect pressure on his policy of opposing Mr Brown’s plan to reinvigorate the economy with a “fiscal stimulus” of tax cuts and higher public spending. Knowing that this may well prove popular, Mr Osborne is on the defensive over his insistence that tax cuts must be “funded” by offsetting tax increases or spending cuts elsewhere. This strategy of giving with one hand and taking with the other is unlikely to do much to jump start stalled growth. So the claim that Mr Brown’s scheme threatens to undercut the pound makes for a useful political counter-strike – especially since the precipitous drop in sterling makes it all the more compelling.

The pound has plunged at a headlong rate. Its overall value against a basket of rival currencies has hit a 13-year low, after it plummeted by 15 per cent against the dollar over the past month, and by 8 per cent to record lows against the euro. Yet while the fall has been dizzying, it can hardly be seen as a surprise. Sterling’s plight can be traced back to the deepening woes of the country’s stricken economy, and their fallout. Britain is entering its first recession for 16 years, and is set to fare worse in the global downturn, worse than its rivals. The Bank of England has cut interest rate to 3 per cent, a 54-year low.

The result is a double whammy for sterling. Dire prospects for UK plc make investing in British assets unattractive, while very low interest rates make Britain a much less appealing place for investors to park cash. So flows of “hot money” that have flooded in during the good times are starting to flood out.

How much does any of this really matter? There are two main dangers. First, as Mr Osborne argues, a weak pound that makes it even less attractive to invest in Britain could make it harder for the Treasury to borrow in the markets by selling government bonds. In turn, that means that it may end up having to pay more to finance surging government borrowing.

Secondly, a weak currency risks igniting inflation by driving up the nation’s import bills.

For now, however, while the pound’s fall is sharp, it is not unprecedented and the threat to Treasury fundraising remains limited. Nor is the second problem a real headache for now. Inflation is set to tumble. In a recessionary climate, businesses are unlikely to be able to pass on the higher cost of imports.

Crucially, a weaker pound will actually help to bolster the economy, making British exports more competitive. As other economies revive, this ought, eventually, to allow an export-led recovery. Provided that the pound does not collapse in a destabilising and disorderly way, its slide can be seen as a tonic, not a torment.

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