Sterling fell below $1.46 for the first time since 1994 yesterday amid speculation that interest rates in Britain's decelerating economy might peak sooner than in other major economies.

A slowdown in British wage growth, inflation levels below the government's target and a recent sharp drop in house prices have all fanned expectations that British rates are on hold.

With US rates already half a percentage point above British ones and the US Federal Reserve still on a tightening bias, the need of holding sterling against the broadly firm dollars was lessening.

A rate rise is expected to come even sooner in the euro zone, with the European Central Bank (ECB) expected to tighten monetary policy later this week.

This saw sterling lose ground even to the euro, the currency of Britain's main trading partners which has had troubles of its own on the foreign exchanges. Such losses saw sterling fall to six-week lows on broad trade-weighted measures.

"The market is turning against the idea that the Bank of England Monetary Policy Committee (MPC) will put up interest rates any time soon," said Mr Stephen Lewis, chief economist at Monument Derivatives in London.

"Rates will be kept on hold until UK inflation is back above the target, so there isn't any point in waiting around in sterling waiting for the MPC to make its move."

By mid-afternoon, sterling was down nearly 1 per cent on the day. It fell to four-week lows of 61.60 pence sterling against the euro. Sterling's weakness was reflected in its trade-weighted index, which is now about seven percent below its 14-year peaks in early May.

The Confederation of British Industry (CBI) welcomed sterling's decline on Thursday. But it said the fall was bringing only mild relief to manufacturers, as sterling's losses against the euro were so far limited compared with its drop against the dollar.