Sterling hit a record low against the euro today after a warning by Alistair Darling that the economy faced its biggest crisis for 60 years was compounded by further misery for manufacturers.
The pound slid to €1.229 — its lowest since the single European currency was launched in 1999 — making the euro worth 81.39p, before recovering slightly to €1.235. It was also down against the dollar, off 1.26 cents to 1.8064, having been as low as $1.8005 following the Chancellor's comments.

Darling shocked Westminster and the City over the weekend when he warned that economic conditions were “arguably the worst they have been for 60 years”. Analysts said the news for sterling had gone from bad to worse with the Chancellor's comments.

Darling's stark warning was backed up today by grim figures from the manufacturing sector which suffered another dismal decline in August.
The Chartered Institute of Purchasing and Supply (CIPS) said that its barometer of activity — where anything below 50 represents contraction and above it signifies growth — stood at 45.9 last month.

That was a slight improvement on July's 91/2-year low of 44.1 but hardly cause for celebration, especially as factories raised prices at a record rate to recoup the cost of raw materials.

Roy Ayliffe, director of professional practice at the instit­ute, warned that job cuts were widespread in August. “Although the manufacturing economy improved marginally from July's low, the sector is still declining,” he said.

“The weak domestic market and in­flationary rises added further pressures. In particular, costs continued to surge on the back of high energy, food and fuel prices while a weak sterling also pushed up the cost of imports.”

The figures kicked off a key week for the British economy with the Bank of England meeting on Wednesday and Thursday to set interest rates.
The monetary policy committee (MPC) is under pressure to cut rates from 5% to breathe life into the ailing economy, but with inflation well above the 2% target at 4.4% and rising, such a move seems unlikely.

Rob Dobson, economist at Markit Economics, which helped compile the CIPS report, said: “The stag­flationary binds that are tying the MPC's hands are still in place, making an imminent rate move unlikely, but the ensuing economic slowdown and recent commodity price decreases should open the door to a cut later in 2008.”

MPC arch-dove David Blanchflower hinted last week that he would vote for a half-point cut this week. He warned that Britain was plunging into recession and if the Bank did not act,
2 million people would be out of work by Christmas and house prices would fall by 30%. However, with inflation running at 16-year highs, Blanchflower is unlikely to get his way.

Former MPC member Charles Goodhart today warned of a year-long recession and a housing crash worse than in the early 1990s.