Sterling tumbled today after a jump in UK unemployment to a 12-year high pointed towards a deepening recession, and on concern that record government bond issuance will greatly inflate the money supply.
The number of people claiming jobless benefit rose in February by the biggest amount on record, official data showed, and the wider measure of unemployment rose above the psychological barrier of 2 million for the first time since 1997.
Russell Jones, head of fixed income and currencies global research at RBC Capital Markets, said the rise in unemployment and weak wage data was "horrible, catastrophic" for the UK economy and things will get even worse.
"All this is clearly not helping sterling, although we see a bit of bounce-back against the dollar. But my sense remains that the authorities in the UK don't seem to mind too much if sterling falls," he added.
Bank of England policymaker David Blanchflower said he feared that one in 10 Britons could be out of work by the end of this year.
"The worry is that this is all going to get much worse and we need to do something about it," Blanchflower told Reuters.
By 2 p.m. the euro was up around 1.4 percent against sterling at 93.95 pence, having earlier traded above 94 pence for the first time since Jan. 27, according to Reuters charts.
Sterling was down 0.5 percent against the dollar at $1.3975, after falling as low as $1.3848 earlier.
Separately, minutes from the BoE's February meeting showed policymakers were unanimous in the decision to slash interest rates to a record low of 0.5 percent and embark on a 75 billion pound asset-buying programme.
This suggests they're prepared to take further action in the fight against deflation and recession. The BoE has already launched "quantitative easing" measures to purchase bonds, which will boost the money supply further, analysts said.
The government's debt-issuing agency also said today that gilt sales in 2009/10 fiscal year will total a record 147.9 billion pounds.
"We believe that the policy rate will trough at the current level of 0.5 percent and that the focus of monetary policy has shifted almost entirely to the less conventional asset purchase programme," said Amit Kara, UK economist at UBS.
"The committee is ready and willing to extend the size and scope of the programme to almost any extent to support nominal spending," he said.