Pound parity with euro may be only weeks away

The crash in the value of the pound came as latest manufacturing figures showed the depth of the UK's industrial slump, a recession which a leading Bank of England rate-setter said will continue to deepen until the end of next year.

In further bad news for holidaymakers and importers, £1 was today capable of buying just 1.127 on the foreign exchange, or even less at the tourist rate in the bureau de change, where £1- 1 parity is already almost a fact of life.

In trading today the pound gave up another 1.4 euro cents, down from 1.141 at last night's close, representing a crash of around 12% since September and a devaluation over the past
18 months of around 25%. At the beginning of the decade, sterling could buy nearly 1.75 on the foreign exchange.

Latest data from the CBI reveal British manufacturing remains in the depth of depression.
Its latest industrial trends survey found 56% of manufacturers expecting their output to fall, a more pessimistic outlook than at any time during the 1990/91 recession and the worst figures since the depression of 1980 following Margaret Thatcher's election victory.

The survey also found 52% of manufacturers said their order books are down while 45% of exporters said their orders are down despite a weaker pound supposedly making their life easier. "This is depressing reading," said the CBI's chief economic adviser Ian McCafferty. "It is worrying that despite the 20% depreciation in pound sterling over the past year, export orders remain so weak.

"Our export competitiveness is increasing but many of our key export markets are contracting rapidly."

Kate Barker, the third-longest serving member of the nine-strong monetary policy committee, says she does not believe the slump in the UK economy will stabilise until the end of next year. Her comments hammered home the Bank's view the UK economy will at least equal the five quarters of contraction seen in the 1990-91 recession.

"The UK economy remains very weak. My short-term outlook is not strong," said Barker.

"It's very hard to be optimistic in times like these but there have been a number of interventionist policy actions such as interest rate cuts as well as fiscal and banking actions that will eventually work their way into the economy and in the end bring about a recovery, or at the very least stabilise things.

"I think the real issue out there is that a lot of companies are destocking and at the same time reducing their debt levels.

"They're working through their stock now and I think we'll also start to see that cycle turn toward the end of next year. I anticipate there will be a recovery toward the end of next year, by which I mean there will come a point where I don't expect things to get worse. But it is the pace of that recovery which is hard to judge."

Following the MPC's drastic interest rate cuts in the UK to 2% this autumn, the first time since 1939, the Swiss central bank slashed its interest rates to just 0.5% today.