Holidaymakers heading abroad are facing a weaker pound after sterling fell on fears of a possible UK recession.

Tuesday's assessment on the economy from the Bank of England sent the pound to its lowest level against the US dollar for nearly two years.

It touched a 22-month low of $1.86 before settling at $1.87.

The pound is also weaker against the euro signalling an unwelcome shift for tourists already hit by rising holiday costs and a dearth of cut-price getaway deals.

Tour giants Thomas Cook and TUI Travel have confirmed that they are hiking prices and putting fewer holidays on the last minute market as they slash capacity in the current economic uncertainty.

James Hughes, market analyst at CMC Markets, said: "The dollar continues to gain ground across the board as the global economic outlook begins to converge with that of the US.

"Certainly yesterday's comments by the Bank of England did little to help improve support for the pound with the prospect of zero growth in 2009 adding to downside pressures."

Britain's economic worries were mirrored on the continent as data showed the economies of Germany, France and Italy shrank during the last quarter.

High fuel and food prices holding back consumer spending were blamed for the contractions, which caused economic activity overall in the 15-state zone that shares the euro currency to fall 0.2 per cent during the second quarter this year.

Business and consumer confidence in the euro area plunged to the lowest level in more than five years in July.

© Independent Television News Limited 2009. All rights reserved.