The pound tumbled on the foreign exchanges yesterday, as traders bet the Bank of England would have to cut benchmark UK interest rates again as soon as economic conditions deteriorate.

The Bank's Monetary Policy Committee stayed its hand at the end of its two-day meeting on Thursday, holding base rates at 5%, but a strong belief that it will move next month weighed on sterling yesterday.

The pound dropped below $1.95 to touch an intra-day low of $1.946 - its poorest level since February. It was last night down about half-a-cent on the session, around $1.95.

The euro was up half-a-penny against the pound at around 79.32p.

Jean Claude-Trichet, president of the European Central Bank, seemed in no hurry to cut benchmark interest rates in the 15-nation eurozone after the ECB held them at 4% on Thursday.

Oil prices surged to fresh records yesterday. Benchmark US light crude rose as high as $126.20 a barrel during trading, and Brent touched $125.90.

The UK's FTSE-100 index of leading shareS fell 66.1 to 6204.7 points as news of a record $7.8bn (£4bn) quarterly loss at insurance giant American International Group weighed on financial stocks.