Bloomberg News

Pound Weakens Versus Peers on Outlook for ‘Shaky’ U.K. Growth

June 17, 2011

June 17 (Bloomberg) -- The pound weakened against most of its peers as stocks declined amid concern that the pace of Britain’s economic growth is slowing.

U.K. bonds declined as the Debt Management Office auctioned 4 billion pounds ($6.45 billion) of 28-, 91- and 182-day bills. Gilts rose over the past two days, when data showed retail sales slid more than forecast in May while jobless-benefit claims surged. The pound slid versus the euro after German Chancellor Angela Merkel retreated from demands that bondholders be forced to shoulder a “substantial” share of a Greek rescue, saying she’ll work with the European Central Bank to avoid disrupting markets.

“The pound is suffering from a wider dip in confidence,” said Elizabeth Gregory, a Geneva-based market strategist at Swissquote Bank SA. “There isn’t really much on the data calendar that looks like it’s going to pull it out of this funk. The picture for the U.K. is not particularly rosy, and we also have quite shaky growth and uncomfortably high levels of inflation.”

The pound fell 0.3 percent against nine other developed- economy peers, according to Bloomberg Correlation-Weighted Currency Indexes as of 5 p.m. in London and declined against 12 of 16 major currencies tracked by Bloomberg. Sterling dropped 0.7 percent to 88.50 pence per euro, and slipped 0.5 percent to 129.66 yen. It was 0.2 percent stronger at $1.6184, paring its third-straight weekly decline to 0.3 percent.

European Debt Impasse

Bank of England Governor Mervyn King said officials should continue to hold interest rates at a record low because weak growth in wages and money signal the current bout of above- target inflation will prove temporary. U.K. consumer prices held at the fastest pace since October 2008 last month.

A rate increase “would have meant a weaker recovery, or even further falls in output” and “a risk of inflation falling well below the target in the medium term,” King said in a speech in London on June 15.

UBS AG pushed back its forecast for the Bank of England to start raising rates to February from August.

The yield on the 10-year gilt gained two basis points to 3.20 percent. Two-year note yields also rose two basis points, to 0.77 percent.

Gilts have returned 3.1 percent this year, compared with a 3.4 percent gain on Treasuries, according to European Federation of Financial Analysts Societies and Bloomberg indexes.

--Editors: Mark McCord, Keith Campbell

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

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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