Pound to Plunge, Warns CEBR

An economic foreboder has warned that the pound could sink below parity with euro amidst the market doubts over the Government’s plan to control the deficit.

The pound is trading at 1.10 against the euro, although it reached a low of 1.02 a year ago. Looking at the situation Centre for Economics and Business Research (CEBR) said the UK economy is walking "five yards away from the edge of the cliff" and could be toppled by an "unexpected gust".

The inability to frame out detailed plans because of poor Pre-Budget report earlier this month has added fuel to the fire.

Despite currency markets betting on a Conservative general election victory and tougher action to address the UK's deficit, if labour tends to narrow the gap, the situation could cause the pound to plunge.

The CEBR pointed that huge differences in the performance of member countries such as Germany, and weaker economies such as Greece, can lead to downside risks for the euro.

"Whether markets react to Britain's fragile public finances before they react to the divergence of performance in the euro zone will determine whether sterling drops below parity. If I had to bet, I would bet on the side of parity being broken", Mr. McWilliams said.

The Tories have promised to put forward stringent action to cut spending and look into the levels of public debt.