The pound jumped above $2 for the first time this year yesterday after the Bank of England held UK base rates at 5.25%, with its Monetary Policy Committee unmoved for now by yet further signs of a weakening UK housing market.

Halifax, Britain's biggest mortgage lender, reported hours before the MPC's decision at noon yesterday that the average UK house price fell by a further 0.3% in February.

Taylor Wimpey, Britain's largest housebuilder meanwhile reported a 19% tumble in its UK order book between the start and end of 2007 to £1.06bn. It said that UK home sales in the second half were around 15% lower than in the same six months of 2006.

It added that UK cancellation rates were running above 30% in the second half of last year, way ahead of a long-term average of about 20%. This signals increasing wariness among would-be homebuyers at a time when a sharp domestic economic slowdown is looming and banks have been hiking mortgage interest rates and tightening lending criteria.

Shares in Taylor Wimpey plunged in the immediate wake of yesterday morning's results and the company's announcement that it was suspending a share buy-back programme.

They then turned around to finish up 2% on the session at 167.5p, defying a tumbling stock market. That said, they have plunged from a 52-week high of 540.75p as housebuilding stocks have found themselves among the biggest casualties of the worldwide credit crunch and global economic slowdown resulting from massive default on home loans by "sub-prime" US households with poorer credit ratings.

Taylor Wimpey's pre-tax profits, before exceptionals, tumbled to £535.6m in 2007 from £776.5m in the prior 12 months.

Although the pound burst through $2 yesterday to touch a session high of $2.0096, as the US currency remained on the ropes, the euro jumped to yet another all-time high against sterling of 76.92p.

Hawkish comments from European Central Bank President Jean-Claude Trichet, as the ECB held benchmark interest rates in the 15-nation eurozone at 4%, seem likely to keep the euro firm in the near term at least.

The MPC had been expected almost universally to stand pat on UK interest rates yester- day, amid continuing signs of inflationary dangers.

However, after it announced its decision at noon yesterday, economists reiterated their belief that a weakening UK economy would ensure rates fell further as the year progressed.

The MPC has cut UK base rates by a quarter-point twice so far this cycle, on December 6 and February 7, to take them to 5.25%.

Expectations of further cuts were bolstered yesterday by banking industry figures showing US mortgage foreclosures hit a record high in the fourth quarter. These numbers fuelled concerns about the state of the US economy, which appears to be either in or on the brink of recession, and the knock-on impact around the globe.

Shares in UK banks were hammered as investors on Wall Street made plain their nervousness over a $1.5bn fundraising plan announced by bond insurer Ambac.

Many big banks around the globe find themselves with heavy exposure to "monoline" insurers such as Ambac, which guarantee swathes of the complicated financial instruments held by banks and hammered by the global credit crunch. Investors therefore remain on red alert over the potential impact which failure of any monoline insurer, or a less dramatic but nevertheless serious downgrade of these companies' credit ratings by the big international agencies, could have on the big banks in terms of further write-offs.

The UK's FTSE-100 index of leading shares dropped 87.1 points to 5766.4 yesterday.

Shares in Royal Bank of Scotland fell 3.9% to 341.25p. Barclays sllipped 4.6% to 427p.

In New York, the Dow Jones Industrial Average finished 214.60 points lower at 12,040.39.

The US Mortgage Bankers' Association said a record 0.83% of US home loans were entering the foreclosure process in the last three months of 2007, compared with 0.54% in the same period of 2006.

The US mortgage delinquency rate of 5.82% was the highest since 1985 and up from 4.95% in the fourth quarter of 2006. While slightly more than one in 20 homeowners was missing monthly payments during the last three months of 2007, nearly one in six sub-prime borrowers was delinquent.

The Federal Reserve meanwhile revealed yesterday that the overall proportion of equity which Americans had in their homes had fallen to less than 50% for the first time since 1945.

Opinion is divided on the extent to which the MPC will be able to cut UK rates.

Howard Archer, chief UK economist at consultancy Global Insight, expects a cut in base rates to 5% in May and then further reductions to take them to 4.5% by the year-end and 4% in the first half of 2009.

But Stuart Porteous, head of group economics at Royal Bank of Scotland, said: "There are growing concerns that the growth-inflation trade-off has worsened, where slower growth this year may not guarantee lower inflation further out. Only if price expectations remain anchored can policy-makers be confident that inflation will move back towards the 2% target. As a result, the MPC will continue to proceed cautiously in order to maintain its inflation-fighting credentials. We expect one more rate cut this year, most likely in May, unless economic conditions weaken substantially."