MercoPress. South Atlantic News Agency

Record low for UK £ vs the Euro as recession advances

The British pound has hit a record low against the Euro amid more economic gloom for the United Kingdom. At its low point one pound bought just under Euros 1.14, its weakest-ever showing against the single currency.

It comes as growing concerns over a lengthy recession heighten the prospects of UK interest rates falling to all-time lows below 2% next year, putting pressure on the pound. The National Institute of Economic and Social Research think-tank said Britain's economy shrank by 1% in the three months to November as the pace of the downturn quickened. According to NIESR there is every reason to believe "that the output decline in the fourth quarter of the year will be greater. Government faces the real risk that, despite the measures it took in last month's Budget, output will fall more sharply than it expected to the end of next year. The report underscores that the government needs very urgently to address the availability of bank credit. It says that further interest rate reductions are "unlikely to have much effect". Rates in the Euro-zone remain higher at 2.5%, despite a 0.75% cut from the European Central Bank last week. The pound has sunk nearly 20% against the Euro in the past year as UK interest rates fall from a peak of 5.75% to 2%. The weaker currency should be a boost to UK exporters but the economic woes of major export markets such as the US and Europe is hitting demand. The pound also hit a six-and-a-half-year low against the US dollar last week, falling below 1.45 for the first time since April 2002. Sterling remained below the 1.50 mark, trading at about 1.48 US dollars. Official figures show that economic growth in the UK slowed by 0.5% in the third quarter. In his Pre-Budget Report chancellor Alistair Darling forecast economic growth this year would be 0.75%. He slashed economic growth forecasts for 2009 from 2.75% to between -0.75% and -1.25%. Then, in 2010, Darling said growth was expected at between 1.5% and 2% with the economy continuing to recover after that.