Pound Slides Sixth Day Versus Dollar on Retail Sales; Gilts Gain

The pound weakened for a sixth day against the dollar after a government report showed U.K. retail sales unexpectedly declined in December, adding to signs the economy is struggling to recover.

Sterling dropped to a nine-month low versus the euro after excerpts from a proposed speech by Prime Minister David Cameron raised the specter of Britain exiting the 27-nation European Union. U.K. government bonds advanced. Bank of England policy maker Ian McCafferty said that officials must have an open mind about ways to help the economy, signaling he may support new stimulus measures.

“We obviously had very weak retail sales numbers,” said Christian Lawrence, a currency strategist at Rabobank International in London. “It’s only if we get some headlines coming out of the mouths of politicians that we’re likely to see much of a sea change in sentiment” toward sterling, he said.

The pound fell 0.7 percent to $1.5876 at 5 p.m. London time after sliding to $1.5857, the lowest level since Nov. 16. The U.K. currency depreciated 0.2 percent to 83.76 pence per euro after weakening to 83.88 pence, the least since March 28.

Sterling declined against all except two of its 16 major counterparts this week amid concern a loosening of the U.K.’s relationship with the EU will reduce investor confidence and threaten London’s role as a financial center.

“More of the same” won’t be enough to guarantee the EU’s future due to Britons’ dismay at a lack of consent in their relationship with the bloc, Cameron planned to say in his speech in Amsterdam, according to the text.

While the speech was postponed due to the hostage crisis in Algeria, the Prime Minister’s office released excerpts for publication before the scheduled address.

‘Political Problems’

“Cameron has a lot of political problems but from the perspective of business, uncertainty is a really big problem,” said David Blanchflower, former Bank of England policy maker and a contributing editor at Bloomberg Television. “This may well be not very good for the economy and not good for jobs, at a time when the economy may well we be heading into a triple-dip” recession, he said in an interview with Mark Barton on “Countdown.”

Retail sales including fuel slipped 0.1 percent from November, when they stagnated, the Office for National Statistics said in London. The median forecast of economists in a Bloomberg survey was for an increase of 0.2 percent. Purchases of household goods fell the most in almost three years.

Gilts Gain

The 10-year gilt yield dropped three basis points, or 0.03 percentage point, to 2.01 percent. The 1.75 percent bond maturing in September 2022 advanced 0.255, or 2.55 pounds per 1,000-pound face amount, to 97.725.

U.K. government bonds handed investors a loss of 1.6 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.5 percent and Treasuries fell 0.5 percent.

The pound has weakened 2 percent this year, the second-worst performance after the Japanese yen, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro advanced 1.6 percent and the dollar gained 0.6 percent.

“We need to be open to considering other unorthodox means to conduct monetary policy if they become necessary,” the Bank of England’s McCafferty said in an interview with Guy Johnson on Bloomberg Television in London.

Asked about the pound and whether he would favor a weaker level to help exports, McCafferty said there “are questions on whether sterling is now at a competitive level in terms of allowing that fundamental rebalancing.”

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