LONDON (Bloomberg) — The pound traded close to a record low of 80 pence per euro after UK consumer confidence slid to the lowest level in almost four years, boosting speculation the Bank of England will cut interest rates tomorrow.

Britain's currency dropped for a fourth day versus its European counterpart after Nationwide Building Society said today its confidence index declined to the least since it began publishing the monthly gauge in May 2004. The Bank of England will lower its main rate a quarter-percentage point to five percent, according to 51 of 61 economists surveyed by Bloomberg News.

"The confidence report was the catalyst and that's kept the pound lower," said Neil Jones, head of European hedge-fund sales in London at Mizuho Capital Markets, a unit of Japan's third- largest lender by market value. "I don't think it's over yet."

The pound dropped to 80.01 pence per euro, the lowest level since the 15-nation currency's 1999 inception, before trading little changed at 79.79 pence by 3.25 p.m. in London. It has declined almost nine percent versus the euro this year. The pound may fall to 82 pence in six weeks, Jones forecast.

Britain's currency also fell 0.2 percent to $1.9650, the lowest level since February 26, before climbing to $1.9760, from $1.9697 yesterday. It weakened versus eight of the 16 most-traded currencies.

The index of consumer confidence, compiled by Britain's fourth-biggest mortgage lender and based on a survey of 1,204 people between February 18 and March 20, dropped one point to 77.

Britain's currency pared its decline against the euro, and rose versus the dollar, after a government report showed manufacturing advanced to the strongest level since 2001 in February. The pound was also buoyed as UK stocks rallied, with the FTSE 100 Index gaining as much as 0.4 percent. It was recently little changed, near a five-week high.

"The pound is undergoing a slight rebound following the production data," said Ian Stannard, a currency strategist in London at BNP Paribas SA, France's biggest bank. "We're also seeing a bit of a correction after the losses we've seen in the last few days."

UK government bonds were little changed. The yield on the two-year note held at 4 percent.

The Confederation of British Industry, Britain's biggest business lobby, said today the central bank "should make a quarter-point cut now, rather than later, to help hard-pressed businesses and consumers".

The International Monetary Fund slashed its growth forecasts for the UK and now expects expansion of 1.6 percent this year and next, the weakest since the last recession in the early 1990s, the Daily Telegraph reported. The IMF says the UK is among the economies most vulnerable to a housing-market slump.

The IMF predicted yesterday losses from the credit crunch may reach $945 billion from the current $232 billion, damping demand for higher-yielding currencies, including the UK's. Morgan Stanley, the second-biggest US securities firm, said the crisis has further to run.

The pound dropped yesterday after HBOS Plc, the U.K.'s largest mortgage provider, said the average cost of a home fell the most since 1992.

"We have a reasonably pessimistic view on the currency," said David Forrester, an economist at Barclays Capital Inc. in Singapore. "We expect house prices to weaken further and that will encourage more rate cuts. Falling house prices might have a negative impact on consumption."

The pound may decline to $1.93 by the end of this year, Forrester forecast.

"We've been calling for a 25 basis-point cut in April for a long time, and we now see higher chances that this will be the result," Chiara Corsa, an economist at UniCredit Markets in Milan, wrote in a research note yesterday. "We see a probability of 70 percent for this scenario, 25 percent for rates to be kept on hold and virtually no chance of a 50 basis-point cut."

The implied yield on the sterling interest-rate futures contract due December fell 15 basis points in the past two weeks to 4.92 percent on expectations of lower borrowing costs. It reversed an earlier drop today after the UK manufacturing data.

Factory output in Europe's second-biggest economy expanded 0.4 percent, compared with a 0.5 percent advance in January, the Office for National Statistics said in London.

Economists had forecast a flat result, the median of 32 estimates in a Bloomberg survey showed. The index of manufacturing reached 103.8, the highest since March 2001.