Pound falls sharply against dollar

The pound has hit a seven-and-a-half-year low against the dollar amid fears for the UK banking sector.

Sterling fell 3.5 per cent to $1.3863 earlier today, its lowest level against the dollar since 2001, as the latest multi-billion pound package put more pressure on the taxpayer to support the banks.

Investors were also worried the government, which already holds a 70 per cent stake in Royal Bank of Scotland, may nationalise the group and share prices dived.

Meanwhile, the dollar surged ahead of Barack Obama's inauguration this afternoon.

However, the pound rallied slightly over the day as inflation did not fall as fast as had been feared.

By mid-afternoon, the pound had risen slightly to against the dollar to $1.3987, and to €1.08235 against the euro.