Pound Falls on Speculation BOE to Add More Stimulus; Gilts Rise

The pound fell the most in eight months versus the euro this week as Bank of England minutes showed two policy makers voted for a larger increase in asset purchases than agreed at this month’s meeting.

Gilts advanced after Bank of England policy maker David Miles said he and Adam Posen voted to add 75 billion pounds ($119 billion) to the central bank’s stimulus plan because the economy is in a “precarious situation.” The Monetary Policy Committee finally agreed on a 50 billion-pound increase. Sterling fell to a two-month low against the euro as a report confirmed U.K. gross domestic product shrank last quarter.

“The minutes were dovish,” said Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London. “U.K. policy makers are being quite guarded about anything positive. That’s pushed the pound down against the euro because the market thinks there might be a case for more stimulus.”

The U.K. currency depreciated 2.3 percent this week to 84.90 pence per euro at 4:11 p.m. London time yesterday, the biggest weekly drop most since June 3. It reached 85.06 pence, the weakest level since Dec. 12. Sterling was little changed at $1.5828.

Gross domestic product dropped 0.2 percent in the fourth quarter from the previous three months, confirming the previous estimate, the Office for National Statistics said yesterday.

Quarterly Decline

The pound has weakened 1.8 percent over the previous three months and 3.5 percent over the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies.

The yield on the 10-year gilt dropped 12 basis points this week to 2.07 percent. The 3.75 percent bond maturing in September 2021 gained 1.055, or 10.55 pounds per 1,000-pound face amount, to 114.47.

U.K. reports next week are forecast to show consumer confidence rose for a second month in February and mortgage approvals increased last month, according to economists surveyed by Bloomberg.

Gilts have handed investors a 1.4 percent loss this year, after returning almost 17 percent in 2011, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt fell 0.2 percent, and U.S. Treasuries slid 0.4 percent, the indexes show.

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

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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