The British pound plummeted to its lowest level against the dollar yesterday since October 2006. It now seems possible that sterling has replaced the U.S. dollar as the world’s worst currency following a spate of bad economic news.

On a trade weighted basis the pound declined to an 11-year low yesterday and continues to drop this morning.

The economic data in the United Kingdom has gone from bad to worse over the last several months and the Bank of England is stuck as inflation accelerates and the housing market deflates.

Like the Fed in the United States, the Bank of England is cornered by soaring inflation and a major decline in housing values. Also, British banks rank among the worst trapped in an ongoing credit crisis since last summer with more losses tied to mortgage securitization and rising domestic consumer defaults.

For years the British pound traded firmly versus the dollar. Last fall, the pound traded north of 2 to 1 versus the buck – a record high. But as the credit crisis deepened across England the central bank has been unable to successfully navigate a challenging environment of toxic deflation in bank credit, plunging real estate prices and rapidly accelerating inflation.

The pound is now declining against most currencies and supplements the dollar as the worst performing major currency in 2008.

Sterling has already been declining against the euro for the last several years as the single European currency skyrocketed vis-à-vis most international units. But with European economies now slowing sharply and some countries bordering recession, the big rally in the euro has come to a dead-end since last week. The pound, already declining prior to the dollar’s big gains recently, is likely to fall much harder than the euro.

Investors might want to start looking closely at British stocks – major beneficiaries of a weaker pound going forward. Though it’s still too early to aggressively purchase equities, British stocks are worthy of tracking at these levels.

A sharply declining currency can do wonders for exports. The United States, harboring one of the cheapest major currencies on the planet since 2006 has already benefited from rising exports as the dollar gains competitiveness. Companies in England will also benefit as the pound continues to decline.

On a valuations basis, the FTSE 100 Index in London trades at a very reasonable 9.8 times trailing earnings and yields a 4.7% dividend yield. That’s pretty attractive.

The Anglo-Saxon economies are certainly not about to boom any time soon. But a case can be made for their stock markets – attractively valued in euro terms.

The big surprise for global investors over the next few years might not be a continued boom in emerging market equities but a revival in major market stocks in the United States and England. Both markets will benefit from cheap currencies.