The pound slid to an all-time low against the euro, reaching 88pence, after a report by the Bank of England (BoE) showed the UK economy may contract at its fastest pace in 18 years this quarter, strengthening the case for interest rate cuts.

The British currency also fell to its weakest level on record versus the currencies of its main trading partners, a BoE index showed. The National Institute for Economic and Social Research recently said that the UK economy shrank -1% to November and may contract more than that in the final three months of the year.

The pound may weaken to parity with the euro during the second quarter, according to technical analysis, strategists at MIG Investments SA wrote in a report. A declining pound will bolster the British economy and the BoE shouldn’t target the value of the currency in setting interest rates, according to Alistair Darling, Chancellor of the Exchequer.