Sterling plumbed its lowest level versus the dollar since mid-August and hit a fresh all-time low against the euro on Friday as gloom about the prospects of the UK economy increases expectations of interest rate cuts.

The pound has hit all-time lows versus the euro for three consecutive days and retreated from the psychologically significant $2 level as poor housing data has firmed views that interest rates are set to fall significantly from 5.5 percent in 2008.

"It's just general bearishness regarding sterling being perpetuated. There are concerns about the interest rate environment and at the same time there are inflationary pressures, so the balancing act for the Bank of England is getting more and more difficult," said Jeremy Stretch, strategist at Rabobank.

By 0805 GMT, the pound had fallen as low as $1.9675, its lowest since mid-August, when the credit crunch began. The euro rose as high as 74.85 pence before retreating slightly to 74.64 pence.

While news about the UK housing market has been bleak and some UK retailers such as electrical goods retailer DSG saw poor Christmas sales, there are still some bright spots in the UK economy.

Retailer John Lewis said on Friday its business held up well over the Christmas week with department store sales up 8.0 percent year-on-year.

Investors will take fresh cues on prospects for the extent of monetary easing from UK Bank of England consumer credit data and mortgage approvals and lending data for November and services PMI data for December at 0930 GMT.

Source Supplied by Reuters