Sterling on verge of Euro parity

The pound dropped to a new low against the euro on Monday, finishing the day at £1 = €1.022, its weakest level since the single European currency was introduced in 1999. Some observers expect the two currencies to reach parity this week.

"Another day like today and we are pretty much there [at parity]," said currency strategist Daragh Maher. "We have had close to a two per cent move and with pretty thin liquidity this week there is every possibility that the trend extends."

The euro has gained by almost one-third against sterling this year and has jumped 18 per cent in December alone after the Bank of England cut interest rates.

Although a weak currency can benefit the economy by boosting exports, it is not good for short-term confidence. Alan Clarke, a UK economist at BNP Paribas, told the Independent: "Our two main trading partners, the US and the Eurozone, are very weak at the moment so sterling's weakness is not going to prevent a bloodbath for consumers and fixed investment, and it will not drive recovery until the back end of 2009. In the short run, the man on the street feels it mainly in the high price of going on holiday to Europe and that may hurt confidence."

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