Page last updated at 21:44 GMT, Monday, 1 September 2008 22:44 UK

Recession fears push pound down

Pounds and dollars
The gloomy UK economic outlook is weighing heavily on sterling

The pound has hit a record low against the euro and a two-year low against the dollar amid fresh fears about the UK sliding into recession.

Gloomy housing and manufacturing data and comments from the Chancellor about the UK's economic woes are to blame for the pound's decline, traders said.

Sterling hit 81.21 pence against the euro, before trading at 81.14 pence.

In later trade sterling slipped below $1.80 - the lowest since April 2006 - as lower oil prices helped the dollar.

By the end of European trade, one pound was worth $1.8011.

Sterling has fallen sharply over the past month. In mid-July, one pound bought two dollars.

The catalyst for sterling's latest fall was downbeat data from the property and manufacturing sectors.

All indicators seem to suggest that the economy will unavoidably slide into recession
Lutz Karpowitz, analyst, Commerzbank

Recession fears

UK mortgage approvals fell 71% in July, the the lowest level since records began 15 years ago, according to the Bank of England.

Meanwhile, property consultants Hometrack said house prices fell for an 11th straight month in August.

Elsewhere in the economy, the manufacturing sector shrank for the fourth month in a row in August as demand fell at home and abroad.

"The current weakness of sterling accurately reflects the present situation of the British economy," said Lutz Karpowitz, an analyst at Commerzbank.

"All indicators seem to suggest that the economy will unavoidably slide into recession."

Gloomy Chancellor

The data adds to the wave of gloomy news about Britain's economic health, summed up by the Chancellor at the weekend.

In an interview with the Guardian newspaper on Saturday, Alistair Darling warned that the economic downturn was likely to be deeper and could last longer than first feared.

BBC economic editor Hugh Pym said the global mood had turned against the pound in recent weeks, because of the perceived problems with the UK economy.

The chancellor's recent comments had served as a reminder of those issues - if anyone needed reminding, our correspondent added.

The former Bank of England policymaker Professor Charles Goodhart warned that the UK's economic recovery may not begin until 2010.

Analysts said that sterling's fall was fuelled by pessimistic prospects at home and a downturn in the eurozone economy that could also hurt UK growth.

"It's now just a question of which is the straw that breaks sterling's back," said Martin McMahon, currency strategist at Credit Suisse.

Another measure of sterling's performance - the trade-weighted sterling average - also fell to the weakest level since October 1996.

The trade-weighted sterling average tracks the currency against the UK's main trading partners.





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