Sterling fell to a four-year low against the euro on Wednesday, after the Bank of England signalled interest rates would need to be cut and predicted a worsening outlook for economic growth. The BoE's quarterly inflation report showed inflation hitting its 2 percent target in two years' time if rates move in line with market expectations.
Which imply a cut to 5.5 percent in the first quarter of next year and another in the second half. In its first formal assessment of the economic impact of the credit crunch, the bank also cut its forecasts for growth in 2008 even if rates fall in line with market expectations.
By 1500 GMT the euro was trading around 71.06 pence, up three-quarters of a percent and just below an earlier 71.12 pence peak, its highest since October 2003.
Sterling was steady at $2.0701, more than a cent below levels seen before the BoE report. On the Bank of England's trade weighted index, sterling fell as low as 101.2, its lowest since July 2006 before recovering slightly to 101.4. Earlier, the pound got a small boost from data showing British average earnings rising more than expected in the three months to September.