Bloomberg News

Pound Falls Before Factory Data That May Show Recovery Faltering

October 11, 2011

Oct. 11 (Bloomberg) -- The pound weakened for a second day against the euro before a report today that will probably show U.K. manufacturing declined in August, adding to signs the nation’s economic recovery is faltering.

Sterling fell versus 10 of its 16 major peers monitored by Bloomberg, snapping a two-day gain against the dollar. Factory output decreased 0.2 percent in August from the previous month, when it rose 0.1 percent, according to the median estimate of 24 economists surveyed by Bloomberg. Industrial output, which includes mining, oil and gas, may have dropped 0.2 percent on the month, another survey showed.

“Sterling is suffering from expectations that today’s data will be weaker and also an increased focus on dovish Bank of England rhetoric,” said Elizabeth Gregory, a market strategist in Geneva at Swissquote Bank SA, a unit of financial and trading-services company Swissquote Group. “Attention is once again returning to U.K. fundamentals, and the outlook is not encouraging.”

Britain’s currency depreciated 0.2 percent to 87.24 pence per euro at 8:18 a.m. in London, and slipped 0.1 percent to $1.5646. The yield on the 10-year gilt was little changed at 2.59 percent, with the two-year yield at 0.65 percent.

The pound fell against most of its major counterparts last week as the Bank of England’s reactivation of its quantitative- easing program fueled concern that rising inflation will erode the value of the currency. The central bank raised the ceiling for bond purchases to 275 billion pounds ($430 billion) from 200 billion pounds, saying slowing global growth and the turmoil in Europe threaten the U.K. recovery.

‘Radical Measures Needed’

The BOE’s expansion of its monetary stimulus program may not be enough to prevent the U.K. economy slipping back into recession, the British Chambers of Commerce said today.

“The recent increase” in so-called quantitative easing “is welcomed, but more radical measures are needed,” BCC Chief Economist David Kern said in an e-mailed statement in London.

BOE policy maker David Miles said in a speech in London late yesterday that though the outlook for the economy has worsened, there are “good reasons” to think that the central bank’s expansion of stimulus will aid the recovery.

The U.K economy slowed more than initially estimated in the second quarter, growing 0.1 percent from the previous three months, the Office for National Statistics said last week. That was lower than the 0.2 percent previously published.

The pound has declined 1.6 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which measure a basket of 10 developed-market currencies.

--Editors: Daniel Tilles, Nicholas Reynolds

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net; 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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