‘Sterling is finished’ claim after 6-cent slump

The pound crashed to its lowest levels since 2001 today — down a staggering six cents, below $1.40 — as one of the world's leading investors declared: "Sterling is finished."

The weakness of the pound also brought a renewed slump against the euro, as the British government's second banking bailout appeared to have been written off as a failure, and against the backdrop of the Treasury giving the Bank of England permission to print more money.

Jim Rogers, co-founder of the Quantum Fund, the main hedge fund of George Soros, the man who broke the Bank of England in 1992, today declared: "I would urge you to sell any sterling you might have." Speaking to Bloomberg news agency, he added: "It's finished. I hate to say it but I would not put any money in the UK."

Traders on the foreign exchange took Rogers and countless other bearish analysts at their word.

Sterling crashed to $1.3884 against the dollar, a fall of 6.46 cents on the day. Against the euro, the single European currency was trading 2.44p stronger at 93.04p, with the pound valued ever closer to parity at just 1.2926.

In fact the pound was in reverse against all 16 major actively-traded currencies in the world as latest inflation figures saw economists predicting a stagnating economy in the UK would be further mired by deflation. "The British economy is in deep trouble and investors are in no mood to hang around and wait for a pick-up," said IdeaGlobal's foreign exchange head Maurice Pomery.

Other currency specialists warned there is now a real risk credit-rating agencies could follow their move on Spain and downgrade British sovereign debt, making it more expensive and more difficult for the Treasury to raise money on the world's capital markets.

With official GDP figures at the end of the week expected to show the depths to which the UK economy has contracted, the rate of decline shown in today's consumer and retail price indices indicate, say the City, a lurch deep into deflation in the coming months.

Other official figures tomorrow will show the huge borrowing hole in the public finances and give the latest snapshot on soaring unemployment.

Out today, the headline Consumer Prices Index, which the Bank of England is meant to control at or around 2%, fell to 3.1% in December from 4.1% in November as the price of oil further collapsed from its midsummer highs.That is the sharpest fall in inflation since the last recession in 1992.

The Retail Prices Index -— seen by some as a truer indicator of the inflation rate — fell from 3% to 0.9% in November. "Further sharp falls are still expected over the coming months, with RPI inflation possibly entering negative territory within a couple of months," said Hetal Mehta of Ernst & Young's highly regarded Item Club economic forecasting unit. "Item forecasts RPI inflation to average minus 3% this year."

All eyes are now on Mervyn King, the Governor of the Bank of England, who is due to make his first major speech tonight since being told by the Treasury that he can now increase the money supply.