Pound limps to 12-year low versus currency basket

LONDON (Reuters) - The pound hit its weakest level against a basket of currencies in nearly 12 years on Friday, clobbered by a weak economic backdrop that has intensified speculation of a cut in interest rates by year-end.

A recent slew of disappointing figures, including a dramatic drop in UK house prices and retail sales on Thursday has added to the view the economy is heading towards a recession.

This has kept the pound dangling just above a two-year low against the dollar and a record trough versus the euro.

"The UK economic picture is deteriorating so rapidly, and the recent housing market data is confirming that. The market is rushing to revise down its growth forecast for the UK," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.

"Things are getting worse, not better, for sterling."

Trade-weighted sterling, which tracks the currency's move against those of the UK's major trading partners, slumped to 89.5, its weakest since October 1996, on the view that the effects of domestic weakness in the UK economy could be exacerbated by a struggling euro zone economy.

The pound fell as low as $1.8260, not far from a two-year low of $1.8238 hit on Thursday. By 8:41 a.m., the pair traded at $1.8294, little changed on the day.

Sterling has plummeted nearly 8 percent against the dollar this month and is set to clock its worst monthly performance since October 1992, when the currency crashed out of the European Exchange Rate Mechanism.

The euro rose 0.3 percent to 80.62 pence, teetering on the verge of 80.98 pence, its strongest since the single currency was introduced in 1999.