The pound continued its fall against the dollar this morning, as currency markets anticipated another drastic cut in interest rates from the Bank of England at midday today.

Sterling fell to $1.4528 against the dollar, after tumbling to a 13-year low of $1.4668 last night. The pound also hit a record low against the euro, which jumped as high as 86.74p — the strongest level since the single European currency was launched in 1999.

One trader said: “Everyone is waiting to see what the [Bank's] decision will be later on. It’s panic ahead of that.”

The pound has now fallen by more than 27 per cent against the dollar over the past 12 months, and by almost 20 per cent on the trade-weighted index.

Sterling is being battered as historic lows in UK interest rates, below those of the eurozone, reduce returns on cash deposited in Britain, cutting investor appetite for the currency.

At the same time, markets are more fearful for the UK’s economic prospects.

The Bank of England's Monetary Policy Committee is expected to cut interest rates by at least one percentage point today, taking them to 2 per cent — the lowest figure since 1951. Last month, it stunned markets by cutting borrowing costs by 150 basis points to 3 per cent.

However, some commentators have argued that rates should fall even lower.

Willem Buiter, a leading former member of the Bank's rate-setting committee, yesterday said there was no reason why rates should not fall to zero immediately, to counter the coming recession.

The FTSE 100 index of leading shares rose by 46.73 points today to 4,216.69.

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