Sterling today edged closer to parity with the euro, sinking to a record for the ninth day running on speculation that the Bank of England will follow the US Federal Reserve in cutting the cost of borrowing to zero.

The single currency hit a fresh high above 95p and is on track for its best week and month against the pound as the UK’s public finances showed another sharp deterioration after it was announced that net borrowing soared to a record £16 billion in November as tax revenue declined because of the worsening recession.

A report from the Council of Mortgage Lenders also showed that mortgage lending fell 51 per cent in November from a year earlier.

“UK rates are going close to zero and the pound is going to suffer until we get there,” said Neil Jones, head of European hedge fund sales at Mizuho Capital Markets in London.

“Parity with the euro is the next big psychological barrier.”

At one point sterling slipped to 95.04p per euro, the lowest level since the European currency's launch in 1999. Against the dollar, it dropped to $1.5463 from $1.5536 yesterday.

Charles Bean, the Deputy Governor of the Bank of England, also fed the fears over falling borrowing costs when he said zero interest rates in Britain were a possibility and further capital injections may be required in the banking sector.

In an interview with the Financial Times, Mr Bean said: “It may well turn out that further capital injections are required [to make banks] feel comfortable about continuing to lend”

“The Bean comments have certainly helped put sterling on the back foot again,” said Lee Ferridge, a currency strategist at State Street in London.

The slide in the pound was reinforced by expectations that the growing plight of Britain's economy will force the Bank of England to follow the US Federal Reserve in driving interest rates towards zero while taking other extraordinary measures to jump-start stalled growth.

Speculation that the Bank of England will follow the Fed’s lead was stoked after confirmation on Wednesday that its Monetary Policy Committee (MPC) had discussed a steeper rate cut that the eventual 1 per cent reduction to a record low of 2 per cent.

The record of this month's MPC debate showed that the nine members agreed that “a cut of at least [1 percentage point] was needed”, and that a bigger cut, to below 2 per cent was actively considered in the wake of November's 1.5-point reduction.

Only fears that more drastic action this month would have undercut a vulnerable pound and risk a sterling collapse, alongside concerns that a surprisingly big rate cut could damage economic confidence, persuaded the MPC to limit itself to a one-point move a fortnight ago.

“Sterling’s weakness continues unabated and is lifting the euro-pound to ever new record levels,” said Ulrich Leuchtmann, a Commerzbank analyst.

“The trouble for the pound really began with the minutes of the rate decision, which drove the currency lower,” Mr Leuchtmann added.

“Not only was there again no dissenting vote at the meeting but an even stronger rate cut was also discussed.

“That further increased the probability that the Bank of England will continue to lower the base rate”, he said.

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