Sterling fell against the dollar for the eleventh day in a row yesterday, its longest consecutive decline since 1975, as concerns mounted over Britain’s faltering economy.

The pound hit a more than two-year low of $1.8514 – a level not seen since July 2006 – further extending a seismic shift in currency markets in recent days as interest rate expectations for big economies change.

This latest fall came only days after the Bank of England struck a doveish note in its quarterly Inflation Report, leading analysts to believe that the door may be open for rate cuts once spiralling inflation starts to fall.

Investors are fleeing to the dollar after reassessing the merits of the US economy against those of the UK and the eurozone. They are betting increasingly that the US Federal Reserve’s next move will be to raise interest rates, while gloomy data from the UK and the eurozone this week suggested that rate cuts could be on the cards.

Analysts say that sterling’s fall is not over yet. Bilal Hafeez, a Deutsche Bank foreign exchange strategist, said: “We could level off at this rate for a while but I expect the pound will fall further.”

Paul Robson, an RBS Global Banking currency strategist, said: “It’s not been a good week for sterling but today it’s more of a strong dollar story. Clearly the Bank of England Inflation Report triggered the latest round of selling.”

The euro also continued its slide against the dollar after figures published this week showed that the eurozone was teetering on the brink of recession. The economy in the 15-nation bloc shrank by 0.2 per cent in the three months to the end of June. The dollar has rallied by more than 5 per cent against the euro this month and yesterday the euro dipped as low as $1.4665.

The pound’s 11-day fall against the dollar is the longest run of declines in at least 33 years, according to Reuters. The Federal Reserve shows a similar fall in 1989 but different organisations compare prices at different times of day. The Bank of England takes its closing price at 4pm and Reuters takes its close at 9.15pm.

The strength of the dollar will come as an added burden for the Bank of England, which is grappling with soaring inflation. The CPI measure of inflation rose to 4.4 per cent in July, more than double the Bank’s 2 per cent target. As the pound weakens, the cost of imported items in dollars will rise.

Imports from the US account for about 10 per cent of goods coming into the UK. Import price inflation jumped to 15.6 per cent in June, up from 14.5 per cent in May, official figures showed. However, exporters may welcome sterling’s fall, making their goods cheaper in the US and on the Continent. Yesterday sterling slipped by 0.5 per cent, to 78.85p, against the euro.

The dollar’s strength also undercut commodities, which are priced in the US currency. Gold fell below $800 a troy ounce for the first time this year yesterday before tumbling to $786.70. Silver also continued its decline, falling by more than 7 per cent yesterday to $12.90 an ounce. That is 36 per cent lower than the high of $21.24 reached in March.

Oil prices dipped yesterday by more than $2 to $112 a barrel as concern mounted about demand in the industrialised countries. US crude fell $2.67 to $112.34 a barrel after sliding to $111.34, the lowest level since May 2. London Brent lost $2.52 to $111.16 a barrel.

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