“It’s finished,” said the American author. “I hate to say it, but I would not put any money in the UK. The idea you can fix a period of excess borrowing and excess consumption by more borrowing and consumption to me is just ludicrous. Most Americans alive today won’t be around by the time the last of this credit market mess is finally cleared away.”

The pound shed more than six cents to hit $1.3860, its weakest point since June 2001.

Mark O’Sullivan, dealing director at Currencies Direct, says there are fears that the UK’s debts could be downgraded, meaning UK government borrowing could become more expensive. “Is the second bail-out the answer or are the banks going to have to come back again or be nationalised?” he says. “Second, will the debt be downgraded?”

He says yesterday’s slump represented a three per cent drop for the pound against the dollar. If the government’s plans don’t work, he warned that sterling could topple by a further ten per cent.

Nick Fullerton, MD of FC Exchange, says that all eyes are now on the Bank of England to make its next move. “Another interest rate cut may allow the currency to stabilise again, but for how long we don’t know.”

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