Sterling hits new record euro low

The British pound has fallen to a new record low against the euro amid a grim outlook for the UK economy.

Sterling declined to under 1.14 euros for the first time. It also touched a new low against a basket of currencies.

Interest rates have been cut both in the UK and in the eurozone, but they remain higher in the 15-member euro currency area.

The pound was also hit by new data suggesting the UK economy had shrunk by 1% in the three months to November.

The pound stood at $1.4827 and at 1.1363 euros by later afternoon in London.

The National Institute of Economic and Social Research indicated that the rate of output decline was "accelerating", and the institute now expects a fall of more than 1% in the last three months of the year.

POUND STERLING v EURO: 10 December 2008
Pound Sterling v Euro intraday chart
*All Times GMT

"We have declining interest rates and there isn't really anything at the moment to provide a strong reason to buy," said currency analyst Chris Gothard at Brown Brothers Harriman.

Lower interest rates make it less attractive for foreigners to hold pounds.

A weaker pound is better for the UK exporters but is bad news for British holidaymakers who plan to go abroad during the Christmas season, and also makes imported goods more expensive.

"The recent plethora of bad [UK] data and survey evidence relating to retail sales, unemployment, service sector activity, manufacturing output and construction activity highlight that the economy has taken a major turn for the worse," said IHS Global Insight analyst Howard Archer.

He added that he expected the UK economy to decline by 2% in 2009.