By Aidan Meikle

Sterling found itself under increased pressure today against the euro and dollar with a sharper than forecast fall in British retail sales.

This highlights the contracting economy that is occuring at the moment.

“By and large, as the labour market gets worse, we’d expect to see a further slowdown in consumer spending,”  said David Tinsley, economist at National Australia Bank in London.

Sterling was also dented at the margins as UK gilts crumbled on after a long-dated gilt auction failed to be fully covered.

Analysts said the market had been knocked by Bank of England Governor Mervyn King’s comments on Tuesday that the central bank may not need to buy as many gilts as planned if its 75 billion pound quantitative easing programme enjoys early success.