Something looking increasingly like an old-style sterling crisis loomed yesterday to add to the impact of the year-old banking crisis on the wider economy.

The pound lost nearly four per cent of its value against the dollar yesterday in its biggest one-day skid since sterling crashed out of the European Exchange Rate Mechanism in 1992 and Norman Lamont resigned as Chancellor.

That followed a 1.9 per cent drop on Monday. At one stage the pound touched $1.386, lower than it has been since July 2001. It also sank to its lowest ever level against the resurgent Japanese yen.

Sterling also lost ground it had recently regained against the euro, falling by 2.7 per cent yesterday to a level where the continental currency bought 93p, back where it was on January 7.

Both the Treasury and the Bank of England have so far welcomed the weaker pound as underpinning demand for British goods at home and abroad, at a time when British companies need any competitive advantage they can get.

There have even been suggestions that the inflation imported by a weakening currency should be welcomed as a defence against the new bogey, deflation.

Now, though, the flight from sterling has gathered a momentum reflecting fears that the British economy is heading into deeper trouble than other developed nations.

Reluctance to leave money in sterling could hamper the British government’s ability to borrow the enormous sums it is now committed to borrow on international capital markets.

The European Commission said on Monday that Britain’s economy is one of the most exposed in the world to the global recession, is set to shrink by 2.8 per cent this year and remain stagnant in 2010.

The Bank of England’s governor, Mervyn King, has taken a consistently relaxed view of the pound’s decline, despite the inflationary pressure it entails.

Last night he only skirted the issue in a speech in Nottingham when he fleshed out some of the practicalities of the new round of measures intended to revive bank lending.

He said the Bank is poised to use its new power to boost the liquidity of commercial banks by both “conventional unconventional measures” and “unconventional unconventional measures” – buying a variety of financial assets held by commercial banks in which the markets have dried up.

“In conducting such operations, it is important to choose markets in which to intervene extremely carefully,” Mr King said. “There is a fine dividing line between helping to oil the wheels in markets which are temporarily impaired and artificially supporting markets in which there is no underlying demand.”

The Bank, he added is now actively considering which markets should respond to the stimulus it could inject by buying.

“In each case the Bank will keep the market fully informed and more details will be provided at the end of the month,” he said.

“It will be a matter of weeks, not days, before a programme of purchases can begin, but it will be weeks, not months.

“The banking system is receiving massive support to cope with the need to restructure its balance sheet. That will take time, but time is a great healer, even of banks.”