Sterling fell below $1.90 today for the first time since 2006 as fears continued to escalate about the UK economy's ability to fight off a recession.

The pound fell further against a strengthening dollar after it emerged inflation in July rose from 3.8 per cent in June to 4.4 per cent — more than double the Government's 2 per cent target and the highest since the Bank of England gained its independence in 1997.

The sharp increase is likely to rule out any hope of a cut to UK interest rates in the short term.

Weak retail sales and housing data indicated that the UK’s economy is slowing.

Government figures based on completed house sales showed that house price inflation fell to 0.6 per cent in June, from 3 per cent in May. The average weighted house price dipped to £215,029 from £216,625 in May.

The British Retail Consortium said that like-for-like sales in July were 0.9 per cent down on a year ago, while the Royal Institution of Chartered Surveyors said house prices fell again in July and the number of completed sales per surveyor slumped to a 30-year low.

Sterling fell to $1.8970 today, a level not seen since November 2006.

Adarsh Sinha, currency strategist at Barclays Capital in London, said: “A large part of (sterling’s weakness) is what’s happening to the dollar. But overnight you had some economic data out of the UK ... generally weak data on the housing market and retail sales.”

Last week, the European Central Bank admitted that eurozone economies had slowed more than expected.

Interest rate futures markets are beginning to price in a chance that the Bank of England’s anticipated rate cut will come in December and not early next year.

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