Sterling takes nose-dive

The pound fell as low as �1.1017 before recovering slightly to stand down 0.17 cents at �1.1043.

It also lost 1.19 cents against the greenback to $1.65.

The latest fall came after a gloomy report by the Bank of England indicated that sterling strength was a thing of the past. Its Quarterly Bulletin said that in the years prior to the financial crisis - when the pound was worth more than $2 and around �1.50 - sterling "had moved above its long-run sustainable level".

The Bank said: "The continued strength of sterling over the past decade has perhaps been surprising."

The report said the fragile economic outlook in the UK, the perceived riskiness of UK assets, and the need for the economy to rebalance - or reduce its trade deficit between imports and exports - were behind the slump in sterling.

The Bank also warned that attempts by thrifty households to cut back on spending could hinder a recovery from recession.

It said higher household saving rates "is likely to have important consequences for the economic outlook".

After years of cheap and easy credit, households are now retrenching as banks cut back on lending and the threat of unemployment grows.

The Bank said: "Any attempt to reduce consumption is likely to push down on output and hence household incomes. That could actually make it harder for households to increase their savings - an effect known as the paradox of thrift."