Pound Slides Toward Lowest in Eight Weeks After Data Disappoint

The pound slid toward the lowest level in eight weeks versus the dollar and yields on Britain’s government bonds dropped to a one-year low on concern the U.K.’s economy is falling short of analysts’ expectations.

Sterling weakened against all but two of its 16 major counterparts as data showed Britain’s shop prices dropped the most on record last month. Industrial output also climbed less than economists forecast in June, according to a separate report. A gauge of inflation expectations for the next decade declined to the lowest level since January 2013. Political leaders held a televised debate yesterday in advance of Scotland’s Sept. 18 referendum on independence.

“We have become much more conscious of the risks for the pound,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “Partly around the fact that the data is softening slightly and also around Scotland’s referendum.”

The pound fell 0.3 percent to $1.6831 at 4:21 p.m. London time after touching $1.6822. The U.K. currency dropped to $1.6814 on Aug. 4, matching the lowest level since June 12. Sterling was little changed at 79.33 pence per euro.

A close below $1.6820 may “trigger some more downward momentum,” BNP Paribas’ Sneyd said. “Long sterling is the most-crowded position” among Group-of-10 nations, he said, referring to bets the pound will rise. “That does make sterling quite vulnerable to negative data surprises.”

Fading Rally

Buoyed by a resurgent economy, the pound has strengthened 11 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. That rally has faded amid signs growth is moderating, leaving sterling 0.5 percent lower in the past month, according to the indexes.

Prices at U.K. stores fell an annual 1.9 percent, the most since the series began in 2006, the British Retail Consortium said today. Food-price inflation slowed to a record-low 0.3 percent from 0.6 percent.

Industrial production increased 0.3 percent after sliding a revised 0.6 percent in May, the Office for National Statistics said. The median estimate of economists in a Bloomberg News survey was for it to rise 0.6 percent.

Citigroup Inc.’s Economic Surprise Index for the U.K., which shows if data beat or fell short of economists’ forecasts, was at minus 7 today, below zero for a fifth day, and down from this year’s high of 37.1 set in February.

Policy Meeting

The 10-year break-even rate, which measures future expectations for retail-price inflation based on the difference between index-linked bonds and conventional gilts, dropped two basis points, or 0.02 percentage point, to 2.82 percentage points, the lowest since Jan. 9, 2013, based on closing-market data.

Bank of England officials, starting a two-day monetary policy meeting today, will keep the benchmark interest rate at a record-low 0.5 percent tomorrow, according to all 47 economists surveyed by Bloomberg.

In the first live televised debate of the campaign before next month’s independence referendum, Scottish nationalist leader Alex Salmond presented the vote as a chance to make Scotland more democratic, more socially just and to capitalize on its resources. Former Chancellor of the Exchequer Alistair Darling, who leads the campaign for a No vote, said it was possible to have a stronger Scottish Parliament with more powers as part of the U.K.

U.K. government bonds rose, with the 10-year gilt yield falling six basis points, or 0.06 percentage point, to 2.52 percent. The rate touched 2.50 percent, the lowest since Aug. 13, 2013. The 2.25 percent bond due in September 2023 climbed 0.495, or 4.95 pounds per 1,000-pound face amount, to 97.84.

Gilts returned 5.2 percent this year through yesterday, Bloomberg World Bond Indexes show. German securities gained 5.5 percent and Treasuries earned 3.6 percent.

(An earlier version of this story corrected sterling’s lowest level in the fourth paragraph.)

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