Sterling yesterday plunged to its lowest level in almost 13 years, hammered by expectations that the Bank of England will opt for another large interest rate cut this week in a move to avoid a recession turning into a protracted slump in the wake of a new salvo of grim economic data.

Sterling yesterday plunged to its lowest level in almost 13 years, hammered by expectations that the Bank of England will opt for another large interest rate cut this week in a move to avoid a recession turning into a protracted slump in the wake of a new salvo of grim economic data.

The latest Purchasing Managers Index for the all-important UK service sector fell to a new record low of 40.1 in November, well below expectations and marking a further contraction from the previous month's level of 42.4.

Rob Minikin, a currency strategist at Standard Chartered, said: "The pound has been performing relatively poorly, and the key to that is the Bank of England policy outlook."

In mid-morning trading yesterday, one pound bought $1.4664, but it later climbed to $1.4769.

The falling pound also pushed the euro up 0.5% to 85.85p, its strongest since mid-November.

However, on a trade weighted basis, the floundering pound fell to 80.4, its weakest point since January 1996.

The trade weighted index is a multilateral exchange rate which is a weighted average of exchange rates of home and foreign currencies, with the weight for each country equal to its share in trade.

Sterling has now fallen almost 18% on the trade-weighted index since the start of the year.

Market expectations are growing that the central bank will today slash borrowing costs by a full percentage point as it tries to shore up growth and fend off the risk of deflation.

Tom Levinson, a currency strategist at ING, yesterday said: "It's just another piece of terrible data out the UK, and it backs up the idea that we'll get a big cut from the Bank."

AIB Group economist Geraldine Concagh added: "Sterling has gone on the defensive in the build-up to the Bank of England meeting."

Central banks in the euro zone and New Zealand as well as Sweden are also expected to cut rates substantially this week.