Bloomberg News

Pound Falls Before Report That May Show Manufacturing Shrank

October 03, 2011

Oct. 3 (Bloomberg) -- The pound weakened and gilts rose before a report that is predicted to show U.K. manufacturing shrank for an eighth consecutive month in September, adding to the case for further monetary stimulus.

Sterling weakened against 10 of 16 major counterparts, losing most versus the Japanese yen. A gauge based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 48.5, from 49 in August, according to the median estimate in a Bloomberg survey. A level below 50 indicates contraction. The Bank of England’s monetary policy committee meets on Oct. 6 to consider whether to increase its asset-purchase program, known as quantitative easing.

“Today’s manufacturing PMI data will be the focus, and that isn’t expected to be particularly positive,” said Adrian Schmidt, a currency strategist at Lloyds Bank Corporate Markets in London. Gains in the pound this week may be “more difficult as the MPC meeting on Thursday is seen by some as offering a potential risk of quantitative easing.”

The pound declined for a second day versus the dollar, losing 0.3 percent to $1.5534 at 8:38 a.m. in London. Sterling was little changed at 85.84 pence per euro and 0.5 percent weaker at 119.45 yen.

Gilts rose, lowering yields on the 10-year securities by six basis points to 2.37 percent. Two-year note yields declined three basis points to 0.55 percent.

BOE Tools

Bank of England policy makers said in minutes of last month’s policy meeting released on Sept. 21 that it is becoming “increasingly probable” that another round of government-bond purchases may be needed to stimulate the economy. The central bank has the tools available to provide additional “monetary loosening” should the economy continue to deteriorate, Chief Economist Spencer Dale said in an interview with the Daily Mail published on Sept. 29.

The central bank will also make a decision on interest rates at its Oct. 6 meeting.

U.K. house prices fell for a fifth month in September, property researcher Hometrack Ltd. said in an e-mailed report today based on its monthly survey of real-estate agents. The average cost of a home slipped 0.1 percent from August and was down 3.5 percent from a year earlier, the company said.

--Editors: Matthew Brown, Mark McCord

To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net

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


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