Pound dives to another record low against euro

The pound — trading at 1.40 a year ago — tumbled 2.4 cents against the single currency to a record low of $1.0524 at one stage, making the euro worth 94.9p, 2p more than it was last night.

The vote of no confidence followed yet another rash of dismal economic news including a collapse in mortgage lending and a surge in Government borrowing to record levels.

Pressure is mounting on the Bank of England to aggressively cut interest rates again next month to stop recession becoming depression. It has already lowered rates from 5% to 2% in the last three months.

Official figures showed Government borrowing soared to £16 billion last month — greater than the £13.7 billion expected in the City and Westminster and a record for November. It left public sector borrowing at £56.1 billion for the first eight months of the financial year compared with £29.2 billion at the same stage last year.

The public finances have been left in disarray by falling tax receipts and increased spending as recession deepens. Chancellor Alistair Darling last month outlined an unprecedented spending spree funded by borrowing including a cut in VAT from 17.5% to 15% and handouts to the low paid and small businesses.

But economists today warned that the Chancellor's borrowing forecasts were already looking far too optimistic — a major embarrassment to Darling
and the Prime Minister so soon after the Pre-Budget Report (PBR).

David Page of Investec said: "This is frightening, as from December onwards we expect to see a further deterioration in the public finances reflecting implementation of the PBR measures.

"If October and November's deterioration marks a genuine trend worsening in the public finances related to the severity of the economic downturn, the ultimate borrowing total for this year could be far worse than the Government's November projection."

He said Darling's borrowing figures for this year could rocket from the intended £78 billion to more than £90 billion, while others speculated next year's figure of £118 billion could hit a staggering £150 billion.

Hetal Mehta, senior economic advisor to the Ernst & Young Item Club, said: "The public finances are in a dire state, with Darling inheriting a mess from Gordon Brown.

"Darling is hoping to use the recession as an excuse for abandoning the fiscal rules, but even after doubling his borrowing forecast for this financial year, it is already looking like being on the low side."

Figures from the Council of Mortgage Lenders (CML) also showed mortgage lending dropped to £14.6 billion in November, a 22% drop from October and 51% down on November last year.

The CML warned the number of home owners falling badly behind on their mortgage payments is expected to double to 500,000 next year.

The grim forecast means that one in 25 borrowers will be at least three months behind on their payments and potentially heading for repossession. An estimated 75,000 of them will be living in London. Not since the end of the last recession in 1992 will so many homeowners have been in arrears.

The number of repossesions is expected to rise from 45,000 to 75,000 in 2009, almost equalling the 75,500 record of 1991.