Pound falls to 10-month low

HOLIDAYMAKERS and shoppers were dealt a severe blow yesterday as the pound tumbled to a 10-month low and experts warned that sterling was “staring into the abyss”.

The pound has tumbled to a 10 month low and analysts fear there is worse to come The pound has tumbled to a 10-month low and analysts fear there is worse to come

Hard-hit families planning Easter breaks in Europe or the US face getting 10 per cent less for their cash as fears grow that the UK will have a hung parliament in the forthcoming election.

In a dramatic day of trading, the currency fell 1.6 per cent to drop below the symbolic $1.50 level against the dollar for the first time since May.

Traders were shocked by the prospect of a hung parliament creating financial uncertainty which will hamper Britain’s recovery from the recession. Sterling has now lost 7 per cent against the dollar this year alone.

The pound also fell against the euro – slumping below 1.10 – as well as against most other major currencies.

The sudden drop from $1.52 to below $1.48 was the pound’s biggest one-day fall since January last year and analysts fear that worse is to come.

Sterling has lost nearly 10 cents against the dollar in little more than a week – hitting holidaymakers in the pocket, putting upward pressure on petrol pump prices and lifting import costs for businesses.

The pound hit a 24-year low of $1.35 last year in the worst depths of the recession.

Experts within the UK travel industry said families who have not yet booked their Easter breaks should consider other destinations outside the euro zone.

Mike Greenacre, managing director of Co-operative Travel, said: “Although Spanish resorts have taken widespread action to make things more affordable, we have seen growth in demand for Turkey, Egypt and North Africa.”

Analysts blamed uncertainty for damage to confidence. Mark O’Sullivan of Currencies Direct said: “Until the political situation in the UK becomes clearer, sterling will remain very vulnerable.”

Lee Hardman of the Bank of Tokyo-Mitsubishi said: “A Labour victory would further damage the fiscal credibility of the UK.”

Analysts added that Gordon Brown’s refusal to confirm that Alistair Darling would remain as Chancellor in the event of a Labour victory was adding further jitters to the markets.

Mr O’Sullivan added: “There is a very fine line between wanting a weak pound and people losing faith in our economy.” He warned that sterling “could be staring over the edge of the abyss.”

Chris Turner of ING Commercial Banking said: “UK policymakers will not appreciate the kind of fast markets that can see a ‘sell UK’ mentality developing.” With Britain now a net importer of goods, the fall in sterling will ramp up the cost of living and add to inflationary pressures.

It will also make it less likely that Britain can cut its trade gap. The Office for National Statistics said the deficit was £7.3bn in December, compared with £6.8bn in November, as imports rose more than exports. December’s figure was the highest since January 2009.

Comments from members of the Bank rate-setting committee that more quantitative easing – creating electronic money – could be needed to shore up a fragile recovery have also hit the pound.

Mr Brown’s spokesman said: “The Prime Minister doesn’t ever comment on what happens in the financial markets for obvious reasons. He remains very focused on ensuring that the recovery in the UK economy continues.”

A latest poll suggested the Tory lead over Labour had been cut raising the prospect of a hung parliament – where no party has a majority.

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