An employee for a company I work for has sent a letter to a loan company purporting to be written by myself and has forged my signature at the bottom of the letter. The letter consists of an inaccurate description of her salary and she has also enclosed an altered payslip to "support" her claim. I am obviously appalled by this, what can I do ?

Tell whoever is in charge of personnel ASAP and also tell the loan company! Press charges if you need to, for impersonation, by calling the non-emergency police line.

I have informed my boss and they say they "are looking into it". If she remains employed, which is looking likely, I feel like my position has almost become untenable as I can no longer work with someone who has committed this offence against my name. I am wondering where I stand legally in terms of compensation

And what has the loan company said? You can't just sit there waiting for people to take over. This happened to YOU and the faster you do something the better. Call the police and ask to talk to a detective. This is fraud, impersonation, and identity theft. If this person is likely to remain, then talk to a lawyer too.
Compensation? From whom? Was your employer complicit? It doesn't sound like it, so they aren't liable (probably why they are dragging their feet). Compensation is the least of your worries. Your concerns should be that no one use your name and then default and ruin your credit, just for starters. I don't that you will get 'compensation' from someone who can't even get a loan. CRIMINAL charges need to be first.