In an interview the Times on Saturday, Osborne warned that Gordon Brown’s strategy of borrowing his way out of recession was a “scorched-earth policy” that would leave the economy in ruins for the Tories to inherit.
He said: “Sterling has devalued rapidly against the euro and the dollar.
“We are in danger, if the Government is not careful, of having a proper sterling collapse, a run on the pound.
“The danger of a run on the pound . . . is that it pushes up long-term interest rates, which is a huge burden on the economy.
“The more you borrow as a government the more you have to sell that debt and the less attractive your currency seems.”
Business Secretary Lord Mandelson called Osborne’s comments “reckless and irresponsible”.
He told BBC Radio 4’s Today programme: “What George Osborne was trying to do in his remarks was undermine the confidence of markets.”