THE pound fell to a two-and-a-half year low against the US dollar yesterday as fears increased that the British economy was spiralling towards a recession.
Sterling slumped to $1.7771 – the lowest since April 2006 – in sharp contrast to the position in July, where £1 was buying two dollars.
The previous day, the pound hit an all-time low against the euro as experts warned that the UK was set to be th
e only major world economy to hit recession by the end of the year.
The weakening pound added to the difficulties facing the Bank of England's monetary policy committee, which will announce today whether the base lending rate will remain at 5 per cent.
Yesterday, as the committee began its deliberations, it faced demands to cut the rate to reinvigorate the UK housing market in the wake of a £1.6 billion kick-start announced by the Prime Minister on Tuesday.
The Trades' Union Congress, which will hold its annual conference next week, called on the Bank to move its focus from keeping inflation around 2 per cent – it is currently significantly above target at 4.4 per cent – to cutting the cost of borrowing.
Adam Lent, the TUC's head of economics, said: "The recent spate of bad economic news shows that the great danger is recession, not inflation.
"With little domestic pressure on prices, the Bank must start to cut interest rates aggressively or the slowdown will be far worse than it needs to be."
Gordon Brown, the Prime Minister, is due to address the Scottish CBI in Glasgow tonight, with his 800-strong audience hoping for clarity on any plans to impose a windfall tax on energy companies and an explanation of how he hopes to help the UK economy survive the global credit crunch.
Yesterday, the Liberal Democrats announced they planned to maintain the pressure on Mr Brown by focusing on the economy and the housing market at their annual conference next week. This will also see the party promise net tax cuts for the first time – with the lower and middle classes set to benefit.
However, there was better news as it emerged that increases in the cost of food were slowing – though prices continued to rise faster in Scotland.
The British Retail Consortium (BRC) said food inflation posted its lowest monthly rise for five months to hit 10 per cent last month. The month-on-month rise was 0.3 per cent, the lowest since March.
BRC director-general Stephen Robertson said the data "offered the prospect that we may be nearing the peak of food inflation".
The BRC's overall Shop Price Index rose 0.6 per cent to 3.8 per cent in August.
And there was a third consecutive month of upward price pressure from the non-food sector, driven by more expensive furniture, books and home entertainment.
The full article contains 488 words and appears in The Scotsman newspaper.
