Oct. 13 (Bloomberg) -- The pound fell to its lowest level against the euro in more than six months on speculation the Bank of England will expand its asset-purchase program.

Sterling also slid against the yen as the U.K.’s inflation rate dropped in September to the lowest level in five years. New Zealand’s dollar climbed after the nation’s retail sales rose in August by the most since 2007 and more than twice the amount forecast by analysts.

“The pessimism about the pound is approaching very elevated levels,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.

The pound depreciated 0.5 percent to 93.97 pence per euro at 7:09 a.m. in New York, after trading at 94.10 pence, the weakest level since March 27. It traded at $1.5795 and decreased 0.2 percent to 141.62 yen. The New Zealand dollar rose 1 percent to 74.02 U.S. cents.

The U.K.’s central bank should extend the 175 billion pound ($276 billion) asset-purchase program by 25 billion pounds, according to the British Chambers of Commerce.

“With quantitative easing, there’s still scope for some more,” David Frost, director general of the group, said in a Bloomberg Television interview. “This fragile recovery we’ve started to see really needs to be nurtured, so we’re saying perhaps another 25 billion pounds could be put into that.”

Prime Minister Gordon Brown said yesterday in a Bloomberg Television interview that ending Britain’s monetary and fiscal stimulus programs now would prolong the recession.

UBS Outlook

UBS AG cut its forecast for the pound today, citing the likelihood policy makers will expand asset purchases. The world’s second-largest currency trader expects it to trade at 94 pence per euro in one month, compared with 89 pence in a prior estimate. Sterling will probably weaken to $1.54 in the same period, compared with a previous estimate of $1.63, UBS said.

“In the absence of any major inflationary pressures, I don’t see where the pressure for a change in the monetary policy is for the U.K.,” said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp., in an interview on Bloomberg Television. “I don’t see any reason for why the sterling can’t continue to gently decline against the euro.”

Consumer prices rose 1.1 percent from a year earlier, compared with 1.6 percent the previous month, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 31 economists was 1.3 percent. On the month, prices were unchanged for the first time in a September since records began in 1996.

Kiwi’s Rally

New Zealand’s dollar rallied as much as 1.1 percent to 66.61 yen, the highest level since October 2008. The nation’s retail sales increased 1.1 percent in August, Statistics New Zealand said today, compared with economists’ estimates of a 0.5 percent increase.

The euro rose against the dollar even after German investor confidence unexpectedly decreased in October for the first time in three months. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations dropped to 56 from 57.7 last month. Economists had forecast an increase to 58.8, the median of 36 forecasts in a Bloomberg News survey showed.

Industrial production in the 16 nations that use the euro gained 1.2 percent in August after dropping 0.3 percent in July, according to a separate survey. The European Union’s statistics office in Luxembourg is due to release the figures tomorrow.

The euro advanced 0.6 percent to $1.4859 and climbed 0.3 percent to 133.07 yen. The U.S. currency depreciated 0.3 percent to 89.56 yen.

Futures on the Standard & Poor’s 500 Index expiring in December were little changed after dropping 0.3 percent.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

Last Updated: October 13, 2009 07:15 EDT