Can the lower pound offset the fiscal squeeze?

There are have been suggestions that the adverse impact on the economy of the coming fiscal tightening will be largely or wholly offset by the positive effects of the fall in the sterling exchange rate. Indeed, the Conservative Party has advanced this argument as support for its view that fiscal policy can be tightened sooner than current Government plans allow. As Shadow Chancellor George Osborne put it, “what you lose in government spending, you gain in exports”.