Growing concerns in global markets over how Britain will fund the surge in government borrowing triggered by the recession are piling more pressure on the weak pound.

Sterling tumbled again yesterday, to a fresh 12-year low on its trade-weighted index, and a record low against the euro, as new evidence emerged that investors may be shunning UK government bonds amid anxieties over the country's worsening economic prospects and financial position.

Worries are surfacing over the threat of a vicious downward spiral in which waning appetite among overseas investors for UK assets, including government bonds, or gilts, saps the pound's strength. That, in turn, makes it still less attractive to take further holdings in assets denominated in a depreciating currency.

As well as aggravating the plunge in the pound, the trends could add to problems for the Treasury in raising the tens of billions of extra borrowing needed in coming years as the cost of recession and bailing out banks send the Government deep into the red.

These concerns mounted yesterday after figures from the Bank of New York Mellon suggested that huge, sustained inflows of international funds into gilts in recent years have abruptly reversed. The figures, based on the bank's own custodial holdings of assets for investors, showed that outflows of funds from UK government and corporate bonds since September 10 have offset some 75 per cent of the inflows seen since the start of 2004.

Although these outflows may be fuelled by fretful investors simply bringing funds home, Simon Derrick, Bank of New York Mellon's head of currency research, said that the data pointed to a fundamental shift, and heightened wariness over both UK investments and the pound.

As Alistair Darling, the Chancellor, prepares to reveal plans within days for a sharp jump in public borrowing - perhaps including the cost of a

“fiscal stimulus” to boost growth through tax cuts and higher spending - other economists are voicing worries over how readily the funds needed will be raised.

Government borrowing this year, which was forecast in March to reach £43billion, is now expected to exceed £60billion and rise above £100billion by 2010-11. Michael Saunders, of Citigroup, estimates that this will force the Treasury to raise about £107billion in net new issuance of gilts this financial year, and similar amounts in the following two years.

However, he sounds a warning that a global glut of cheap capital that made it easy for the Government to borrow until now is drying up, while Britain will have to compete for funding with governments that are also planning to borrow much more.

Mr Saunders notes that overseas investors bought up almost three quarters of a net £133.9billion raised through gilts since the start of 2005. Yet he cautions that this appetite, fuelled by big purchases by foreign central banks and sovereign wealth funds, is likely to be sharply diminished and will be further hit by the pound's fall. The danger is that while the Government will be able to raise the funds it needs, the cost of this borrowing risks being driven upwards as the interest rate, or “yield”, on gilts climbs.

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