Sterling has hit record lows against the euro after a report from the Bank of England this morning led currency dealers to predict further cuts in interest rates.
This evening, the euro rose to just above 83.69p - the highest level since creation of the European single currency in 1999.
Earlier, the Bank of England predicted that the British economy would shrink sharply next year and inflation could fall to just below 1%. This was seen as the bank's gloomiest set of forecasts in more than a decade.
The BoE Inflation Report's charts show CPI inflation at just below 1% in two years assuming interest rates follow the path expected by markets before the BoE's 1.5 percentage point rate cut last week.
Inflation would also be below 1% if rates stayed at their current 3% level, leaving the door open for further rate cuts in the coming months. The Bank of England also said that it expects GDP to fall next year.
