Dollar gains against Sterling to five-year high

Sri Dharanee Performance Arts Theatre

LONDON, October 22, 2008 (AFP) – The British pound fell Wednesday to a five-year low point against the dollar after Bank of England governor Mervyn King indicated that Britain was “likely” entering a recession.

Sterling sank to 1.6203 against the dollar shortly before 0600 GMT, which was its lowest level against the greenback since September 19, 2003.

The pound later stood at 1.6391 dollars at about 0715 GMT, which compared with 1.6728 late in New York on Tuesday.

“It now seems likely that the UK economy is entering a recession,” Bank of England (BoE) chief King said Tuesday at a meeting of business leaders in Leeds, northern England.

King added that the financial crisis had squeezed the amount of money banks would lend to consumers and companies, at a time when high energy and food prices were also reducing disposable incomes.

The prospect of a sharp economic slowdown raises the chances that the British central bank will cut interest rates further, making sterling a less attractive investment than the euro or the dollar.

“King gave a downbeat assessment of UK economic prospects that suggested he supports the case for further monetary easing,” said Barclays Capital analyst David Wo