By Naomi Tajitsu
LONDON (Reuters) - Sterling hit a record low versus the euro on Tuesday, pressured by another batch of bleak UK economic data, while comments from a Bank of England policymaker kept speculation high for more big interest rate cuts.
The pound also matched a recent low hit against a basket of currencies, as figures showed a steeper-than-expected decline in manufacturing and industrial production in October, while another hefty monthly trade gap showed that UK exporters aren't benefiting from sterling's sharp depreciation.
Highlighting the scope of the economic downturn, Bank of England policymaker Andrew Sentance said the recession is likely to be comparable in length and depth with the three major downturns in the UK since World War II
His comments kept speculation brewing that the Bank may cut rates to 1.0 percent or less early next year. Last week it reduced them by a full percentage point to 2.0 percent, their lowest level in roughly 50 years.
"(Sentance's comments are) consistent with expectations that there is more to come from the BoE ... Some people are not ruling out zero rates," said Tom Levinson, currency analyst at ING in London.
By 3:26 p.m., the euro had climbed roughly 0.7 percent to 87.52 pence according to Reuters data, its highest since the common currency was launched in 1999. On a trade-weighted index, the pound fell to 79.8, matching its lowest level on daily BoE records dating back to 1990.
The pound slid as much as 1.5 percent on the day against the dollar to a session low of $1.4678, edging closer to $1.4468 hit last week, its weakest in nearly seven years.
"If we get more talk of further cuts in UK interest rates, then we could see a fall towards $1.40 around Christmas," said James Hughes, markets analyst at CMC Markets in London.
GRIM DATA
Official figures on Tuesday showed that industrial output fell 1.7 percent in October from September, its biggest monthly fall in almost six years. The 5.2 percent annual rate of decline was the biggest since 1991.
The eighth consecutive fall in manufacturing output marked the longest stretch of declines since 1980.
Along with Sentance's remarks, the data kept expectations high for more rate cuts, with SONIA pricing showing traders currently expect a trough in BoE rates around 1.25 percent.
Analysts said that the outlook for sterling remained bleak, although expected bad news was already in sterling's price and global policy initiatives in recent weeks are helping to fuel a relief rally in equity markets.
Another survey showed that retail sales fell at their sharpest annual rate in three years last month.
The trade deficit unexpectedly jumped to 7.75 billion pounds in October from 7.36 billion pounds in September.
(Additional reporting by Tamawa Desai and Jamie McGeever; editing by David Stamp)
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Last updated: 09 December 2008, 15:58
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