LONDON - The pound plunged on Wednesday to a record low point against the euro, breaking barrier after barrier, after gloomy economic data sparked renewed speculation about more interest rate cuts.
Analysts predicted that sterling was on course to reach parity against the euro amid spreading concern that Britain was very close to recession.
In afternoon trading in London, the pound dropped to 1.0861 euros -- the lowest level since the creation of the European single currency in 1999.
"Sterling/euro is still the one to watch," said Piers Cracknell, commercial director at currency specialists Moneycorp in London.
"With record lows nearly every day, one pound for one euro is clearly visible on the radar.
"That level is still more than ten cents away and there is no certainty it will ever be achieved. But unless the pound does get there, many investors will not be satisfied that they have had closure."
Official data showed on Wednesday that the number of people claiming jobless benefits leapt in November by the biggest monthly amount for more than 17 years, in the latest sign of a sharp economic slowdown.
It also emerged that Bank of England policymakers mulled an even steeper cut when they voted 9-0 to slash interest rates earlier this month by a full percentage point to 2.0 percent, according to minutes of their meeting.
Falling interest rates tend to dampen currencies because they make them a less attractive investment in terms of yields.
The BoE's nine-member monetary policy committee (MPC) had on December 4 cut its key lending rate to the lowest level since 1951, amid mounting evidence Britain faces a deep recession.
"December's MPC minutes and the latest labour market data support the view that the MPC could soon be following the US Fed in cutting interest rates very close to zero," said Capital Economics analyst Jonathan Loynes.
The US Federal Reserve had Tuesday slashed its key interest rate to virtually zero in a landmark move aimed at stimulating a recession-hit economy.
Loynes added: "At the very least then, another cut in (British) rates in January looks very likely and is unlikely to be the last.
"This message is backed up by the much bigger than expected 75,000 rise in claimant count unemployment in November, the biggest monthly rise since March 1991."
The claimant count soared by 75,700 from October to 1.07 million people, the Office for National Statistics (ONS) said in a statement.
That was the biggest increase since March 1991 and took the total number to the highest level since July 2000.
The count has now risen for 10 months running amid a sharp economic slowdown. Analysts' consensus forecasts had been for a smaller gain of 45,000 in November, according to Dow Jones Newswires.
Since mid-October, sterling has now plunged by 15 percent in value against the euro, as the British economy teeters on the brink of a recession.
The country's economy shrank 0.5 percent in the three months to September. A second consecutive quarterly contraction would place the country in a technical recession.