Pound Stays Near Lowest in Month Versus Dollar as Economic Recovery Slows

The pound was near its lowest in more than a month against the dollar, headed for a fourth weekly loss, after a report showed U.K. services grew the least in 16 months, boosting concern the recovery may falter.

The U.K. currency was set for its biggest weekly decline against the euro since the week ending July 9. Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply forecast said today their index of U.K. services activity dropped to 51.3 from 53.1 in July, the lowest since April 2009. Economists had predicted a drop to 52. A report yesterday showed the average home price dropped the most in six months in August.

“Sterling continues to feel the heat from weaker U.K. numbers this week,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London.

The U.K. currency was little changed at $1.5405 as of 11:27 a.m. in London. Sterling fell to $1.5327 on Aug. 31, the lowest level since July 23. The pound slipped 0.2 percent to 83.41 pence per euro. It reached 83.48 pence per euro yesterday, the weakest level since Aug. 10.

While the U.K. economy grew at the fastest pace since 2001 in the second quarter, there are signs the recovery is moderating as the government cuts spending to reduce the budget deficit. Growth in manufacturing and construction slowed in August, data showed earlier this week, while house prices declined the most in six months, according to data from the Nationwide Building Society.

The FTSE 100 Index of U.K. shares climbed 0.6 percent today, capping a 3.9 percent weekly advance, its best performance in almost two months.

Gilts

The Bank of England will keep its benchmark interest rate at a record low 0.5 percent and maintain its asset purchases at 200 billion pounds when policy makers hold their monthly meeting on Sept. 9, according to economists surveyed by Bloomberg.

Government bonds were little changed, with the 10-year gilt yield at 2.97 percent. The two-year yield fell 1 basis point to 0.70 percent.

Gilts returned 4.7 percent last month, according to Bank of America Merrill Lynch indexes, the most since December 2008, as the safest assets rallied on concern the U.S. recovery is faltering, threatening global growth. Ten-year securities were headed for their first weekly drop since the five days ending July 23, with the yield five basis points higher since Aug. 27.

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net

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