Pound continues downward slide

Fears of a recession in the Euro Zone have prompted sterling and the euro to fall significantly against the dollar.

The collapse in global credit markets has taken a severe toll on European economies, driving the euro to an 11-month low against the dollar in Tokyo, as it also faced a strong rally by the yen.

The euro was at $1.4281 this morning, compared with $1.4325 yesterday.

Sterling fell to a two-year low against the American greenback, trading at $1.76134 this morning.

Tim Clayton, chief strategist at currency advisory consultancy Investica, commented: "The US was the first economy to hit trouble.

"Now people are realising that the UK has the same problems, if not more so, as the US."

Both the European Central Bank and Bank of England refused to alter interest rates yesterday, maintaining base rates at 4.25 and five per cent respectively.

Both Europe and the UK face the dual threats of rising inflation and stagnating economies, making action on the part of central banks difficult.

The ECB also tightened lending criteria for exchanging assets with Europe's banks yesterday. As a result the margin the Bank charges to lend on most asset-based securities will increase to 12 per cent from next February.

The rate was previously as low as two per cent and means the ECB will lend just 88 per cent of the value of tendered securities.

As a result there are renewed fears another financial services provider might spiral into crisis, as lenders find it hard to secure capital from the wholesale markets.

Earlier this week the Organisation for Economic Cooperation and Development (OECD) speculated the UK economy would slip into recession this year, with GDP falling by 0.3 per cent in the third quarter and 0.4 per cent in the fourth.

Chris O'Toole