Pound Drops to Record Low Vs Euro

The pound dropped to a record low against the euro on Monday after Alistair Darling, the UK’s finance minister, said conditions in the country’s economy were as bad as they had been for more than half a century.

The comments added to pressure on sterling, which has sold off sharply in recent weeks amid growing evidence that the UK economy was headed for a recession.

Indeed, last month the pound notched up its biggest fall against the dollar since its ejection from the European Exchange Rate Mechanism in 1992 as figures showed the UK economy ground to a halt in the second quarter and the country’s housing market was experiencing its sharpest collapse since the early 1990s.

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

This has heightened expectations that the Bank of England, which holds it monetary policy committee meeting this week, would start cutting UK interest rates before the end of the year despite rising inflationary pressures within the UK economy.

Analysts said reports of displeasure at Mr Darling’s comments from Gordon Brown, the UK prime minister, were also undermining sentiment.

Meanwhile, more gloomy economic data also piled the pressure on the pound.

Figures from the Bank of England that showed UK mortgage approval dropped to a record low of 33,000 in July.

Analysts said the data heightened concerns over the potential depth and length of the UK housing market correction.

Elsewhere, the UK purchasing managers’ index suggested that the manufacturing sector continued to contract in July.

The pound fell to a record low of £0.8139 against the euro, before recovering some ground to stand down 0.1 per cent at £0.8115.

Sterling also dropped to a fresh two-year low against the dollar, dropping 0.5 per cent to $1.8040, and lost 1 per cent to Y194.32 against the yen.

Pound Drops to Record Low Vs Euro

TradingEconomics.com, Financial Times
9/1/2008 6:23:29 AM