Sterling regained significant ground against a broadly-weaker euro yesterday, notching up one of its biggest one-day advances in the 10-year life of the single currency.

STERLING regained significant ground against a broadly-weaker euro yesterday, notching up one of its biggest one-day advances in the 10-year life of the single currency. This spike casts doubt on whether the pound will be dragged down to parity with the euro as quickly as some experts believe.

The euro, which has trounced sterling in recent months, had by last night fallen by nearly 4p from its pre-weekend close of 96.11p to around 92.3p.

Sterling advanced in spite of expectations that the Bank of England's Monetary Policy Committee will cut UK base rates to a record low on Thursday. Any move in base rates below their current 2% will take them to the lowest level since the Bank of England was created in 1694.

The euro, which was launched in January 1999 and was as recently as July 2007 trading below 67p, touched a record high of 98.03p last Tuesday.

While many foreign exchange experts have been predicting euro-sterling parity before too long given market momentum, some of these same commentators have also been saying that the single currency has become overvalued in terms of economic fundamentals.

Although the European Central Bank has been slower to cut interest rates than the Bank of England, there is a widespread view that it will have to take radical action. There is also a perceived danger that the ECB could cause more damage in eurozone economies by dragging its heels.

Benchmark interest rates in the 16-nation eurozone stand at 3%.

German Chancellor Angela Merkel's governing coalition yesterday started hammering out a multi-billion-euro package to cushion Europe's biggest economy from a deepening recession, with party leaders at odds over proposals for tax relief as they enter an election year.

Officials have pledged to put together a stimulus package which would add to an existing 23bn package of measures - including tax breaks on new cars and credit assistance for companies - which was criticised widely for being too cautious.

This latest effort to boost the German economy underlines the extent to which mainland European countries, as well as the UK, are being hammered by the global downturn triggered by the credit crisis.

Fifty-nine of 61 economists polled by news agency Reuters between December 29 and yesterday predicted the MPC would cut UK base rates by at least a further half-point on Thursday. Fourteen of them forecast a reduction of at least a full percentage-point.

Sterling also managed a significant advance against the dollar yesterday. The pound last night traded close to $1.4740, compared with a pre-weekend close of $1.4517.