The pound dropped to a five-month low against the euro yesterday after the market reacted to a Bank of England report warning that the financial crisis might have prompted a downward reassessment of sterling's long-term value.

In its quarterly bulletin, the central bank said changes to Britain's relative economic outlook, the perceived riskiness of its assets and the need for the economy to rebalance away from domestic consumption had all contributed to sterling's near 20 per cent trade-weighted fall over the past two years.