Bloomberg News

Pound Weakens and Gilts Climb After British Retail Sales Slump

June 16, 2011

June 16 (Bloomberg) -- The pound dropped against the dollar and euro after data showed U.K. retail sales slumped more than economists forecast in May, restrained by higher fuel costs and concern over job losses.

Sterling fell 0.4 percent to $1.6127 as of 9:32 a.m. in London and slipped 0.2 percent to 87.73 pence per euro.

U.K. government bonds advanced, pushing the 10-year yield two basis points lower to 3.22 percent. The two-year note yield also declined two basis points to 0.77 percent.

Short-sterling futures rose, signaling traders were cutting bets on an increase in U.K. borrowing costs. The implied yield on the June 2012 contract fell four basis points to 1.17 percent.

Retail sales fell 1.4 percent from April, when they rose 1.1 percent on warm weather and an extra public holiday, according to the Office for National Statistics. The median forecast of 24 economists in a Bloomberg survey called for a 0.6 percent decline.

Investors pushed back bets on the month that the central bank will next increase rates beyond May of next year, forward contracts on the sterling overnight interbank average show. As recently as February, traders were betting on an increase as soon as May of this year, data from Tullett Prebon Plc showed.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net


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