The Treasury will not repeat the mistakes of Black Wednesday by intervening to try to prop up the pound as it slides towards parity with the euro, ministers said yesterday.

Yvette Cooper, Chief Secretary to the Treasury, said that attempts by previous administrations to target exchange rates had been unsuccessful. The Government will continue to plot a course aimed at keeping inflation under control and supporting the economy, she said.

Officials say that with inflation falling sharply the kind of interest hikes that might bolster sterling would be completely inappropriate at a time when the Government is intervening to support the economy.

Ms Cooper went further than most ministers normally do in talking about sterling. She acknowledged that British tourists were suffering as a result of sterling’s weakness, but said that the low pound was also good for UK exporters.

She told BBC1’s Andrew Marr Show: “We have never had a policy of targeting the pound. Our policy has been to target inflation and that, I think, has been the right way. It has paid off over the last 10 or 11 years. You will recall that previous attempts to target exchange rates - for instance through the Exchange Rate Mechanism - were not successful and caused all kinds of problems.

“Of course it is the case that there is volatility on the currency markets, which reflects the uncertainty in the world economy. Nevertheless, I think we are plotting the course in terms of making sure inflation is coming down, but particularly the action to support the economy, to support jobs and to help us come through this.”

Most ministers have refrained from any comment recently on the fall of sterling, particularly after George Osborne, the shadow chancellor, was widely criticised for "talking down the pound". The Chief Secretary said: “We don’t as ministers ever do running commentaries on the pound. I don’t think that’s the right thing to do.

“But we also say that that is not our target. The purpose of what we do is to support the economy overall and to make sure we work with other countries to do that, to help people through this.”

The plunge in the base interest rate to just 2% over the past few months, coupled with an increase in Government borrowing, has prompted a collapse in the value of sterling, which was yesterday trading at just 1.12 euros or 1.49 US dollars.

As recently as last December, £1 would buy 1.40 euros or 2.06 dollars.Some holiday-makers are receiving less than a euro for each pound they change because of commission charges at bureaux de change in High Streets and airports which are offering rates as low as 1.05 euros to the pound.

Caroline Flint, Minister for Europe, later said that the level of the pound was not a “first-order” economic issue compared to the need to get banks lending again and to support jobs and businesses. She suggested that once these more fundamental economic issues are dealt with, the pound may regain some of its former strength.

Ms Flint told Sky News’s Sunday Live: “I believe that what we need to do is stimulate the recovery and that is why the package agreed at the (European) Council was so important... That is a stimulus package, but also making sure that we work more to get the banks moving again, because lending is important in this.

“The exchange rate obviously is affected by what’s happening at the moment, but we have got to get those first-order issues right in order to have a better look at issues around the exchange rate, which may stabilise if we get those other factors right.”

Former prime minister Sir John Major has accused the government of "over-cooking" the economic crisis to justify the rising size of its debt. He also told BBC One's Andrew Marr Show there could be an "avalanche" of job losses in the new year.

Sir John, who himself had to deal with a recession while prime minister from 1990 to 1997, said it had felt "pretty awful".

Asked whether ministers were scaring people too much over the current economic downturn, he said: "I think they are.

"I think they're over-cooking it because I think they're concerned and they wish to justify the amount of debt they're getting us into.

"I think that is a mistake for a raft of reasons. I don't downplay the seriousness of this: I think this is the worst situation we have had since the Second World War.

"And after 12 years of Labour government, we now have a level of national debt that is the same after six years of world war."

Sir John presided over the Exchange Rate Mechanism debacle that culminated in Black Wednesday.

He said: "If we continue borrowing like this, the world will be coming out of recession and we will have a huge amount of borrowing that will force up interest rates.

"In three years' time, as the world comes out of recession, in the United Kingdom we will have higher interest rates, we will have higher national insurance contributions because the government have already implemented that, and we will have higher taxes."

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