The pound sterling is being allowed to slide gently down in value as part of a long-range British government strategy to boost exports and thus strengthen the country's languishing industry.
The approach could lead to a nearly 10 percent drop in the value of sterling measured against the American dollar, with greater slippage possible against main European currencies.
Last week the strategy, which some economists regard as risky, saw the pound lose 4 percent against the average value of all currencies. Immediately Britain's exporters welcomed the trend, pointing out that their goods would be cheaper on world markets.
But the opposition Labour Party just as swiftly noted that imports would be dearer, producing an upward surge in inflation.
Prime Minister Margaret Thatcher and her economic advisers, however, were not worried. They expect a mild increase in inflation, but not great enough to knock their current policy off course.
Chancellor of the Exchequer Sir Geoffrey Howe still believes that despite the contrived downward trend of sterling, inflation can be brought as low as 5 percent by the middle of next year.
His advisers point out that a boost to exports means a fillip to the domestic economy as exporting companies hire more workers to meet overseas orders.
At present unemployment is over 3 million and rising. A weaker pound is expected to help to stabilize the number of jobless and perhaps even turn the trend against itself.
Critics of the Thatcher government's readiness to let the pound drift down say the policy could get out of hand. The sag became pronounced on Monday as sterling slid below the psychological barrier of $1.60 to the pound. (The lowest post-war value was $1.5675 in 1976.)
Some British Treasury officials described the situation as one of ''free fall'' and quickly urged the Bank of England to step in.The bank has begun to do so, with the pound not expected to decline more than 10 percent.