Pound Falls as Trade Group Sees Recession; Gilt Yield Falls to Record Low
The pound weakened versus higher- yielding peers after data showed U.K. house prices dropped last month and retail sales fell, and as the British Chambers of Commerce cut its economic-growth forecasts.
Sterling depreciated most against the Australian dollar and the South African rand. Chancellor of the Exchequer George Osborne presents updated economic and fiscal forecasts to Parliament tomorrow amid speculation government growth estimates will be cut and budget shortfalls will be greater than predicted. Two-year gilt yields fell to a record.
“We have a negative view about the pound,” said Geoffrey Yu, a currency strategist at UBS AG in London. “With the pre- budget statement later in the week, there is going to be more focus on U.K. growth. Credit and housing numbers are probably going to soften. People are going to question growth, and rightly so.”
The pound was 1.6 percent weaker at 1.5681 Australian dollars and dropped 1.2 percent to 13.0355 rand at 4:17 p.m. London time. It was 0.1 percent weaker at 85.83 pence per euro and climbed 0.7 percent to $1.5550.
Two-year gilt yields fell five basis points to 0.408 percent after touching a record 0.405 percent. Ten-year yields dropped two basis points to 2.28 percent.
The FTSE 100 Index (UKX) of stocks added as much as 3.2 percent, the biggest intraday gain since Oct. 27.
The average cost of a home fell 0.2 percent from October and was down 2.3 percent from a year earlier, Hometrack Ltd. said today in an e-mailed report on its monthly survey of real- estate agents. Prices based on the property researcher’s gauge have fallen every month but one since July 2010.
The BCC said today gross domestic product will increase 0.9 this year, 0.8 percent in 2012 and 1.8 percent in 2013, compared with previous forecasts of 1.1 percent, 2.1 percent and 2.5 percent respectively. It added that the risk of another recession “cannot be shrugged off” and predicted the Bank of England will add to its bond-purchase plan early next year.
The central bank said last week that the threat of the euro-area debt crisis on the U.K. economy has increased. Minutes of the central bank’s Nov. 9-10 meeting released on Nov. 23 showed some policy makers said an increase in stimulus may be needed to support the economy. The minutes also revealed the nine-member Monetary Policy Committee voted unanimously to keep its key interest rate at a record low of 0.5 percent.
The Organisation for Economic Cooperation and Development said the economy “urgently” needs more support and forecast the central bank will increase its bond-purchase target by 125 billion pounds early next year.
Gilts Versus Bunds
Gilts have returned 15 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt gained 6.6 percent and U.S. Treasuries rose 9.4 percent, the indexes show. Gilt yields have fallen 26 basis points in the past month, Bloomberg data shows.
U.K. 10-year gilts dropped earlier as investors unwound long positions ahead of the government’s report tomorrow, said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London.
Prime Minister David Cameron said last week that bringing Britain’s debt under control is proving “harder than anyone envisaged.”
Ten-year gilts yielded about two basis points less than the equivalent-maturity German debt today, compared with a premium of three basis points on Nov. 25. The yield fell below that of German bunds last week for the first time since March 2009.
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