The pound slumped to a fresh record low today, bringing more bad news for British holidaymakers as it pushes up the cost of continental breaks.

The pound hit 80.29p, after reaching the 80p level for the first time yesterday. Against the dollar, the pound traded at $1.9806 in the afternoon. Sterling also fell to its lowest level in 11 1/2 years against a basket of major currencies.

The pound recovered to 79.88p against the euro in the afternoon.

While the Bank of England cut interest rates by a quarter point to 5%, as expected, and hinted at further reductions, the European Central Bank kept its rates at 4% to keep inflation in check, which is higher in the eurozone than in Britain.

The Bank of England said in a statement accompanying the rate cut: "The disruption in financial markets could lead to a slowdown in the economy that was sufficiently sharp to pull inflation below the target. Credit conditions have tightened and the availability of credit appears to be worsening. While the recent depreciation in sterling will support net exports, the prospects for output growth abroad have deteriorated."

The Bank also noted the impact of the depreciation of sterling on import costs. While British goods have become more competitive in the eurozone, the prices of imported goods to Britain have risen as a result of the pound's slide.

When the euro was launched in January 1999, the single currency was worth 70.5p and reached a low of 56.84p against the pound in May 2000.

The weak pound also means that cash-strapped consumers - already struggling to cope with soaring utility bills and a rising tax burden - may think twice about travelling to the continent.

Flipped the other way round, the pound now buys just under €1.25, down from close to €1.50 last summer, a fall of nearly 17% and one that will make European holidays considerably more expensive.

Sean Tipton at the Association of British Travel Agents said the rate has traditionally hovered around €1.40. That means a family of four who used to spend £1,000 to £1,200 on average on a holiday, will now have to fork out about £120 more. "It will be slightly more expensive but not break-the-bank more expensive," he said.

Sterling has come under pressure after a barrage of gloomy news this week. House prices are falling at their fastest rate since the last housing market slump in the early 1990s, consumer confidence has plummeted to its lowest level in four years and the International Monetary Fund slashed its growth forecast for the UK yesterday. The drop in sterling has revived talk of pound-euro parity.

Tipton argued that European breaks are still better value than staying in the UK. "One of the many reasons we travel to the eurozone is it is good value. Going out, eating, drinking, generally spending is cheaper than in the UK," he said. "It will still be cheaper than the UK."