Pound 'will keep falling' against the dollar

STERLING will continue to slide against the dollar as long as financial turbulence persists, analysts say, as international investors dump the pound and euro.

The pound fell to a five-year low against the dollar last week, briefly dropping below $1.70 before closing the week at $1.71. The Bank of England, in common with other central banks, cut interest rates by half a point last week, reducing Bank rate to 4.5%.

However UK interest rates are seen by currency dealers as having further to fall than those of other countries, with several economists predicting a drop to as low as 2.5% next year. Analysts surveyed by Ideaglobal, a financial-research firm, expect a drop from the current 4.5% to 4% by the end of the year.

Economists at Barclays Capital say sterling could remain under pressure as long as the financial panic persists, but predict that it will climb back to $1.88 against the dollar in the coming months. However, other experts believe sterling will continue to fall.

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