British Pound Falls to Record Low

December 16, 2008 Updated: December 16, 2008

The pound fell to a record low against the Euro on Monday, amid concern over the government's future borrowing plans and mounting debt.

The pound fell to a low of 1.1086 euros, and according to some analysts could soon fetch less than one euro as the Bank of England is expected to keep on cutting interest rates aggressively to boost the economy.

The pound has fallen 25 a total of percent over the last 18 months, and by 12 percent in the last 4 months alone.

UK interest rates have already been notched down to 2 percent, which is now lower than the euro zone rate.

Last week Germany's finance minister, Peer Steinbrueck publicly lambasted the British Prime Minister's plans to borrow more to stimulate the economy.

A spokesman for BGC stockbrokers that he along with many others in the City of London's financial sector, agreed with the German view that this was not the way to go about it.

“The cut in VAT to stimulate the economy was entirely the wrong", he told Sky News "They should have moved the income tax rate bands so that people could see from day one they would be better of financially. The other thing that should happen immediately is to implement some sort of loan guarantee scheme to help small businesses and give the banks confidence to start lending.”

Former prime minister John Major blamed the government for the present high levels of debt.

“What has happened here is continual expenditure above and beyond which we could afford, ” he told the BBC. "Instead of repaying debt we have been adding to it. We now pay every day £262 million in interest alone and that debt is set to double over the next few years. We have the highest level of personal debt in Europe. We have the highest level of government debt in history.”

When it was suggested to U.K. Treasury Minister Yvette Cooper in a BBC interview that the pound's fall on the currency market was a refection of government policy, she said: "We've never had a policy of targeting the pound. Our policy is to target inflation. And that I think has been the right one."

"If we don't step in to support the economy now it will cost us more in future. We will see a recession that is deeper,it will last longer and we will have unemployment longer.”