The pound yesterday vaulted to its highest levels against the dollar since the early days of the Thatcher era in 1981, coming within striking distance of the watershed of $2.07 against the embattled American currency.

Sterling scaled its latest peaks against the greenback after a senior Bank of England official questioned the need for any cut in Britain’s interest rates, only a day before a widely forecast cut in US rates that is expected this evening.

Kate Barker, an external member of the Bank of England Monetary Policy Committee, who is seen as a key swing voter in its verdicts on the direction of rates, was quoted in a local newspaper as saying: “We [the MPC] are asking ourselves if things are so different from August, and do we actually have to cut rates.”

Ms Barker’s tough tone fuelled growing City doubt that the Bank will be persuaded to lower British rates before Christmas just as markets are braced for today’s likely rate cut by the US Fed, giving a big boost to sterling.

A wider gap between UK base rates and the lower level of official rates in America puts upward pressure on the pound by increasing the appeal of sterling-denominated holdings.

In yesterday’s trading, the pound rose by 0.74 cents to reach $2.0694, a peak not seen since 1981 and one that eclipsed its previous 26-year high of $2.0655 set during July. Sterling later closed a little lower against the dollar at $2.0671, up half a cent from yesterday’s opening level.

The gains for the pound came as the dollar remained under sustained pressure across the board on the world’s currency markets.

Strains on the greenback yesterday were reinforced by another double dose of bad news on the US economy, with more bleak figures on the state of the housing market and a poll showing that American consumers’ confidence fell this month to its lowest ebb since the aftermath of Hurricane Katrina in October 2005.

In the latest indication that the US housing slump continues to deepen, a key survey showed that prices for homes across ten key American metropolitan areas have suffered their sharpest year-on-year drop since June 1991, declining by 5 per cent. The S&P/ Case-Shiller index showed that prices of existing, single-family homes fell by 0.8 per cent in August, marking their eighth monthly decline in succession.

Details from the figures showed that eight out of twenty metropolitan areas studied endured the sharpest annual falls in house prices on record last month.

In Washington, prices were down by 7.2 per cent year on year. Prices in Tampa, Florida, were down by 10.1 per cent. Prices in Phoenix, Arizona, were down 8 per cent and those in San Diego, California, fell 8.3 per cent.

The plight of homeowners combined with oil prices rising to new record levels to take a toll of US consumers’ sentiment. The regular index of consumer confidence from the Conference Board, a private research group, fell to 95.6 in October, worse than expected and down from a revised 99.5 in the previous month.

Worries over US prospects left the dollar stuck close to record lows against the euro, with the single currency trading as high as $1.4438.

Only an influential report in The Wall Street Journal suggesting that a Fed rate cut today was not a certainty and that a half-point rate cut was not seriously in consideration helped to shore up the greenback a little.

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