Page last updated at 21:55 GMT, Thursday, 4 December 2008

Pound hits new low against euro

Sterling pound
The sharp cut in UK interest rates had been widely predicted

The British pound has fallen to a historic low against the euro after a 1% cut in UK interest rates.

After a volatile day on the currency markets, the pound fell to 1.148 euros.

The UK currency also dropped against the dollar, to $1.447, the lowest level in almost seven years, before recovering to $1.465.

In July, the pound traded at more than $2, but it has lost ground as a number of economic reports forecast a particularly severe downturn in the UK.

On Thursday, the pound also hit a new low in more than 13 years against the Japanese yen.

At the same time, the euro rose slightly against the dollar, to $1.277.

The Bank of England slashed UK interest rates to 2% on Thursday, their lowest level since 1951.

However, analysts said the cut had been already priced into markets, as it was in line with expectations.

"Over the next few days the market will view this as a good move and we could see a little upside for sterling," said James Hughes, markets analyst at CMC Markets in London.

Such bounce could be short lived, however.

"Once consensus builds that there will be more cuts in January or February, then it is likely to come under pressure once more," Mr Hughes added.

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