April 15 (Bloomberg) -- The pound fell to a record low against the euro after reports showed consumer prices rose at a slower pace than forecast last month and the property-market slump deteriorated to the worst since records began.

The U.K. currency also fell to a six-week low versus the dollar as the data strengthened the case for the Bank of England to cut borrowing costs. Yields on sterling futures contracts dropped to the lowest levels since April 10, when policy makers reduced Britain's main lending rate for a third time since December to shore up the economy.

``These data further support our view that the Bank of England will be cutting interest rates,'' said Paul Robson, a currency strategist in London at Royal Bank of Scotland Group Plc, one of the 10 biggest currency traders. ``Sterling will weaken over the months ahead. We've been a sterling bear in the past couple of months.''

The pound fell as much as 0.8 percent to 80.64 pence per euro, the lowest level since the common currency's inception in 1999, and was at 80.50 pence by 4:55 p.m. in London. It will decline to 82 pence in three months, Robson forecast.

The pound also dropped to $1.9624, from $1.9784, and weakened versus all but two of the 16 most-traded currencies tracked by Bloomberg.

The number of residential property agents and surveyors saying U.K. prices fell exceeded those reporting gains by 78.5 percentage points, compared with 65.7 in February, according to the Royal Institution of Chartered Surveyors. It was the worst result since at least 1978.

Long-Term Decline

Britain's currency is set for a long-term decline against the euro and the yen as the nation's economic outlook deteriorates, said Neil Jones, head of European hedge-fund sales at Mizuho Capital Markets in London.

``One of the most significant trends I spotted in the market is that sellers of the pound are longer-term entities,'' said Jones. ``These clients tend to have a six- to 12-month horizon. It isn't a short-term opportunistic trade. This looks like a longer-term disinvestment in the pound.''

Two-year U.K. government notes, those most sensitive to the interest-rate outlook, climbed. The yield fell 2 basis points to 3.91 percent. The price of the 4.75 percent security due June 2010 gained 0.05, or 50 pence per 1,000-pound ($1,963) face amount, to 101.70. The 10-year bond yield was little changed at 4.43 percent. Yields move inversely to bond prices.

U.K. debt erased an earlier advance after a government report showed U.S. producer prices rose almost twice as much as forecast last month.

Outperforming Bunds

Gilts outperformed German bunds, the benchmark for Europe, with the spread, or yield difference, between 10-year notes narrowing to 46 basis points, from 52 basis points yesterday.

U.K. debt also rose more than U.S. Treasuries, with the 10- year spread declining to a two-week low of 88 basis points, from 92 basis points.

``The two-year gilt is the safest place to be on any of the major curves at the moment,'' said David Keeble, head of fixed- income strategy at Calyon, the investment-banking unit of Credit Agricole SA, France's second-biggest bank by assets. Two-year yields will decline by another 30 to 40 basis points in the next six months, he predicted.

The U.K.'s inflation rate stayed at 2.5 percent, less than economists forecast. The result matched the reading for February, which was the highest in nine months, the Office for National Statistics said today. Economists surveyed by Bloomberg News predicted an increase to 2.6 percent.

Inflation expectations have declined on speculation slowing growth will ease price pressures.

Breakeven Rate

The 10-year breakeven rate, or difference in yields between 10-year gilts and inflation-protected bonds of the same maturity, dropped to 3.38 percentage points, from 3.41 percentage points at the end of last month.

The implied yield on the U.K. interest-rate futures contract due June fell to 5.56 percent, from 5.60 percent yesterday, while the yield on the contract maturing in December slipped to 4.90 percent, from 4.96 percent.

The Bank of England cut its benchmark rate a quarter-point to 5 percent last week after the collapse of the U.S. subprime- mortgage market threatened to erode economic growth in Britain.

U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March, an industry report showed today.

Prime Minister Gordon Brown said he's working with the U.K. central bank and financial institutions to ease credit conditions. Brown met today with executives from Britain's biggest lenders as the central bank offered institutions 15 billion pounds in three-month funds.

The Bank of England will reduce the rate to 4.75 percent by midyear and to 4.5 percent by the end of the third quarter, where it will remain until year-end, according to the weighted average of 18 forecasts in a Bloomberg survey.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

Last Updated: April 15, 2008 11:56 EDT