The pound fell to a new low against the euro this morning and threatened to overshadow Gordon Brown's plan to rescue Britain's faltering housing market.

The Prime Minister is due to announce a £1 billion rescue package later this morning, with schemes to help families in danger of having their home repossessed, to provide more council houses and to help first-time buyers get into the housing market through joint equity plans.

One unconfirmed report also suggested that, after weeks of damaging speculation, the Government may temporarily suspend stamp duty, the tax paid by homebuyers.

But the markets provided a less than enthusiastic response to the package, putting a dampener on Mr Brown's plan to relaunch his flagging premiership as well as to boost the faltering UK economy

Sterling slumped against the euro to 81.28p this morning, the lowest level since the single currency was introduced in 1999. It also lost ground against the dollar, falling to $1.79.

Investors are still reeling from comments from Alistair Darling, the Chancellor, who gave warning last week that Britain faced its biggest economic challenge in 60 years.

Business leaders have contradicted the Chancellor's remarks but they appear to have contributed to the weakening of market confidence.

Another factor depressing business confidence is the likelihood that the Bank of England will keep interest rates on hold at 5 per cent when it announces its interest rate decision on Thursday, despite hopes of a cut.

Hazel Blears, the Community Secretary, who will jointly present the housing proposals with Mr Brown, said today that the Government was aimed at "people who need just that little bit extra help to keep them afloat".

While most of the expected proposals are popular, they seem unlikely to be enough to guarantee a successful political fightback for Mr Brown after Labour's recent disastrous showing in local elections and rising dissent within the party.

Polls show that few people think that the housing measures will make a significant difference to their own situations.

Sterling is now the worst performing of the ten leading currencies this year, having fallen by more than 9 per cent against the euro since January amid mounting expectations that the Bank of England would cut interest rates.

Commenting on the housing proposals, George Osborne, the Shadow Chancellor, said: “We will look at the details of these measures and we will support those that will work. But let’s be clear, they are not going to help the vast majority of families facing a rising cost of living and falling house prices. Nor do they amount to the first instalment of the economic recovery plan we were promised.

“I suspect that what we will see in the coming weeks is a desperate and short-term survival plan for the Prime Minister, rather that the long-term economic plan the country needs.”

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