Sterling fell further against the euro this morning as parity between the pound and the single currency edged closer amid continuing concerns about the strength of the British economy.

This morning, €1 cost 87.9p, an increase from yesterday’s close of 87.74p and 34.4 per cent off sterling's peak against the single currency in 2000 when one euro was worth 57p.

The strength of the euro against sterling has been boosted by concerns about the state of the UK economy.

The Treasury was last night unable to rule out pumping more money into the economy and the possibility of interest rates hitting zero is becoming increasingly likely.

Economists have warned that the economy could shrink by one per cent this winter as the credit markets freeze, house prices continue to fall and consumers cut spending.

Despite comments from Juergen Stark, an executive board member of the European Central Bank (ECB), admitting that the bank has little room to cut interest rates further after last week’s cut, the euro was still up against the pound.

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Sterling continued to lose ground against the euro this morning to hit a record low of 94p, as it buckled under the weight of expectations that interest rates would be cut further in the UK.

Charles Bean, the Deputy Governor of the Bank of England, fed the fears over falling borrowing costs when he said zero interest rates in Britain were a possibility and further capital injections may be required in the banking sector.

In early morning trade, the euro hit 93.49p, its highest level since the single currency's introduction in 1999. Sterling tumbled as low as €1.0635.

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