The pound sank to its lowest level against the dollar for more than two years yesterday, and clocked up its longest unbroken losing run against the US currency since the 1970s.

The pound sank to its lowest level against the dollar for more than two years yesterday, and clocked up its longest unbroken losing run against the US currency since the 1970s.

Sterling was weighed down again by financial markets' expectations of cuts in interest rates by the Bank of England as the UK economy stagnates.

The pound had by last night clocked up 11 consecutive sessions of losses against the dollar, which financial news agency Bloomberg calculated was the longest such losing streak since at least January 1971.

Sterling fell as far as $1.8514 during yesterday's session - its weakest level since July 2006. It was trading above $2 as recently as last month.

The main trigger for sterling's weakness in recent sessions was the Bank of England's quarterly inflation report on Wednesday, which moved financial markets to price in a series of UK interest rate cuts and to factor in a likelihood of the first reduction by December.

The inflation report predicted that UK economic output would stagnate "over the next year or so". Bank of England Governor Mervyn King highlighted the "possibility of a quarter or two of negative growth".

The report showed the Bank's Monetary Policy Committee now expects benchmark annual UK consumer prices index inflation to be below its 2% target on its chosen two-year time horizon, after peaking at or above 5% in the near term. However, the MPC considers the risks to its medium-term inflation projection lie to the upside.

Sterling was last night trading around $1.8635 - up about one-and-a-quarter cents from its intra-day low but more than three-quarters of a cent weaker than its closing level in London on Thursday.

And the pound did regain some ground against the euro, which has been depressed by EU data on Thursday showing gross domestic product fell in the single currency zone during the second quarter for the first time since comparable records began for this bloc in 1995.

The euro was last night trading around 78.72p - nearly three-quarters of a penny weaker than its finish in London on Thursday.

John Higgins, at consultancy Capital Economics, said yesterday: "A powerful concoction of falling commodity prices, a shrinking US trade deficit and narrowing expected (interest) rate differentials with overseas economies has seen the dollar major trade-weighted index rise by around 6.5% over the past month. These forces look set to continue to propel the greenback higher in coming months."