Pound Declines Versus Euro as U.K. Posts Budget Deficit in July

The pound fell to the lowest level in almost two weeks against the euro as reports showing Britain unexpectedly posted a budget deficit in July and manufacturing orders declined in August added to signs the economy is slowing.

Sterling slipped the most in three weeks against the European common currency. The budget shortfall, which excludes government support for banks, was 557 million pounds ($880 million) compared with a surplus of 2.84 billion pounds a year earlier, the Office for National Statistics said in London. The Debt Management Office sold 1.25 billion pounds of inflation- linked bonds due March 2029 at a so-called real yield of minus 0.025 percent.

“The pound took a bit of a kick in the shins when the numbers came out,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London, referring to the manufacturing data. Britain is “hidden behind by what’s been going on in Europe” and losses by the currency will be muted, he said.

Sterling fell 0.5 percent to 79.02 pence against the euro at 4:18 p.m. London time, after depreciating to 79.08 pence, the weakest level since Aug. 8. The pound gained 0.5 percent to $1.5795.

Britain’s currency has lost 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar fell 2.2 percent and the euro gained 0.7 percent over the period.

Factory Orders

The median of 17 forecasts in a Bloomberg News survey was for the country to record a surplus of 2.2 billion pounds. The deficit was partly due to the closing of the Elgin gas facility in the North Sea, the statistics office said.

An index of factory orders declined to minus 21 in August from minus 6 in July, the Confederation of British Industry said in London in a report today. That’s the lowest since December.

The 10-year gilt yield rose five basis points, or 0.05 percentage point, to 1.71 percent. The rate climbed to 1.73 percent yesterday, the highest level since July 5. The 4 percent bond maturing March 2022 fell 0.39, or 3.90 pounds per 1,000- pound face amount, to 120.07.

Investors bid for 1.84 times the amount of inflation-linked bonds allotted, compared with a bid-to-cover ratio of 1.83 at a previous auction of the securities on June 26, which were sold at a yield of minus 0.108 percent.

U.K. government bonds have lost 1.3 percent this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds, perceived to be among the safest debt securities in the euro area, have declined 1.2 percent this month.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Eleanor Lawrie in London at elawrie@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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