Sterling fell to a new low against the euro today raising fears that it is set to reach parity with the single currency.

The pound declined to €1.118, down from 1.12 yesterday, but travellers at some airports are receiving just €1 for each pound they convert at foreign exchange kiosks.

Sterling has fallen by 18 per cent so far this year, and is down 73 cents from its peak in October 2000.

Analysts said the slump could continue as investors dumped sterling, and sterling-denominated assets amid plunging confidence in the UK economy and expectations of futher aggressive interest rate cuts by the Bank of England.

Some economists forecast that the interest rate, currently 2 per cent, could fall as low as 0 per cent next year.

Mark O’Sullivan, director of trading at Currencies Direct, said the pound could fall for the next six to eight weeks as more dismal economic data on retail sales and the housing market continue to batter the already shrinking economy.

Mr O’Sullivan said: “For any investor or government there is no reason to be holding sterling at the moment.”

Last week the pound hit a a six-and-a-half-year low against the dollar falling below $1.45 for the first time since April 2002.

Sterling remained below the $1.50 mark today, trading at about $1.49.

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