Pound Declines Against Euro for Third Week as U.K. Economic Growth Slows

The pound fell against the euro for a third week, the longest losing streak since March, amid signs the euro area will contain the Greek debt crisis while the U.K. economic expansion slows.

Sterling traded at its weakest level versus the single currency since June 1 as sales of Spanish bonds and Greek bills stoked optimism that European economies will control their budget deficits. British house prices are set to drop through 2012 as the government cuts spending, Capital Economics Ltd. said yesterday, after data showing declines in June. The pound rose versus the dollar on signs of weaker growth in the U.S.

“The risk premium for the euro is being reduced and there is scope for euro-sterling to come up from current levels,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “The other side of euro strength is dollar weakness.”

Sterling dropped 0.8 percent to 84.44 pence per euro as of 3:55 p.m. in London yesterday after trading as high as 84.59 pence. The U.K. currency advanced 1.8 percent against the dollar to $1.5334.

The yield on the 10-year gilt rose two basis points to 3.36 percent from 3.34 percent on July 9.

The pound has lost 2 percent this year versus its developed-world counterparts, according to Bloomberg Correlation-Weighted Indexes, amid concern the nation won’t manage to control its budget deficit without harming growth.

House Prices

The number of real-estate agents and surveyors saying house prices rose exceeded those reporting declines by 9 percentage points in June, compared with a reading of 21 points in May, the Royal Institution of Chartered Surveyors said. Consumer confidence fell to its lowest level in a year, Nationwide Building Society said last week.

Data to be published on July 23 may show second-quarter gross domestic product in the U.K. rose 0.6 percent, after a 0.3 percent gain in the first quarter, according to the median estimate of 32 analysts surveyed by Bloomberg, potentially easing concern of slower economic growth.

Gilts returned 6.1 percent so far this year, compared with a profit of 6.5 percent for German bunds and a gain of 6 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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