Sterling takes another pounding

Sterling has dropped around 13 per cent against the euro in the past two months as the Bank of England has slashed interest rates in its attempt to stave off a deep and prolonged recession.

UK rates have dropped to 2 per cent, below those in the eurozone after a 1.5 per cent cut in November and a 1 per cent cut earlier this month, which has compounded the pound's woes.

The weaker currency could provide a boost to UK exporters but the economic woes of major export markets such as the US and Europe is hitting demand.

It is thought short-selling - where investors sell assets such as shares or currencies in the hope of buying them back later at a lower price and pocketing the difference - is also behind the pound's slide.

The pound has also suffered big recent falls against the dollar but was holding steady at just under $1.50 today.