Sterling slumped against the dollar today in reaction to more bad economic data suggesting Britain is in for a prolonged and deep recession.

The pound was down 5.2 cents to $1.486, its largest one-day fall in percentage terms since sterling dropped out of the Exchange Rate Mechanism (ERM) in 1992.

The pound was also down 3.5 cents against the euro, at 0.851 pounds.

British manufacturing fell to a record low last month and activity in the eurozone shrank for the sixth month running.

Official figures released this morning from Markit/CIPS show the headline manufacturing purchasing manager's index (PMI) fell to 34.4 in November from a downwardly revised figure of 40.7 in October.

The drop is both the biggest one-month fall and the lowest level for PMI since the series began in 1992.

The PMI for the eurozone, the 15 countries which use the euro, fell to 35.6 points in November, down from 41.1 points in October, and worse than a first estimate of 36.2 points.

The data heaps further pressure on the Bank of England to cut interest rates. The monthly meeting of the Bank of England's Monetary Policy Committee (MPC) takes place this week.

The MPC is expected to announce a cut in interest rates of at least half a percentage point, following the 1.5 per cent reduction last month which took rates to 3 per cent.

UK stocks also helped undermine sterling today with the FTSE 100 falling by 5.2 per cent or 222.52 points at 4,065.49.

Mortgage approvals also fell in October, according to the Bank of England, suggesting that house prices may fall even further.

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