Fear for pound after record plunge
Fears over the value of the pound deepened this afternoon as it crashed to a record low against the euro.
Pounded again: Series of record lows expected
Growing alarm about the British economy sent sterling trading down to its weakest level since the birth of the single currency in 1999. At its lowest point, one pound bought just €1.139.
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City forecasters said that a one-for-one exchange rate between the pound and euro was looking increasingly likely in the coming months. It has already fallen in value by about 20 per cent in the past year.
The pound also remained marooned far below its summer peak of $2 against the US dollar at $1.4803.
The latest slide in the value of the pound comes as the first skiers of the season head out to France, Italy and Austria to face prices up to 25% higher than last year because of inflation and currency movements.
International investors are baling out of the pound because of recent deep cuts in interest rates to two per cent and concerns about the Government's ability to fund high levels of borrowing.
It also emerged the surge in government borrowing to fund spending through the recession has left Britain with a worse credit rating than fast-food chain McDonald's.
Pressure is mounting on the Bank of England to cut interest rates again next month to stop recession turning into full-scale depression. However, this will have the effect of making sterling even less attractive to investors. Some commentators now expect rates to fall to zero next year.
Professor Peter Spencer, economic adviser to the Ernst & Young Item Club and a City economist for 34 years, said: "It is quite astonishing just how weak the UK economy is - it is the weakest I have seen it and it is getting worse by the day. It is adding to pressure to cut interest rates and that is putting pressure on sterling."
Howard Archer, chief UK economist at IHS Global Insight, said: "We really don't want the currency to fall too fast too quickly. That can be really destabilising for the economy. There comes a point when it goes beyond a readjustment and becomes a full-scale devaluation."
However, the fall in the pound has helped boost tourism in London, particularly among visitors from Europe and America. Selfridges said Americans are spending 50% to 60% more in the department store than this time last year.
The National Institute of Economic and Social Research said the economy contracted by one per cent between September and last month.
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