By Matthew Brown Dec. 12 (Bloomberg) -- The pound weakened to a record against the euro for a fifth straight day after HBOS Plc increased impairment charges against loans as credit conditions worsened, bolstering the case for lower interest rates in Europe’s second-largest economy. It also fell versus the dollar as the Senate’s rejection of a $14 billion rescue plan for U.S. automakers sent stocks tumbling, sapping demand for riskier assets. The Bank of England cut its interest rate to 2 percent on Dec. 4, from 5.5 percent at the start of the year, as it tried to limit the fallout from the global financial crisis. The European Central Bank pared its benchmark to 2.50 percent last week, and policy maker Axel Weber cautioned against reducing borrowing costs below 2 percent. “Interest-rate differentials have been key to guiding euro- sterling,” said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. “Stocks are down overnight due to the bailout failure and once again we see sterling tumble versus the dollar.” The U.K. currency depreciated as much as 0.7 percent to 89.40 pence, the lowest level since the euro’s debut in 1999, and was at 89.23 pence by 9:25 a.m. in London. It weakened 0.7 percent to $1.4925. HBOS took a total 5 billion pounds ($7.5 billion) of charges on consumer and corporate loans in the 11 months ended Nov. 30, the Edinburgh-based bank said today. U.K. government bonds advanced, pushing the yield on the 10- year gilt down five basis points to 3.54 percent. The 5 percent security due March 2018 gained 0.44, or 4.4 pounds per 1,000- pound face amount, to 111.36. The yield on the two-year gilt fell 11 basis points to 1.67 percent. To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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