Pound Declines 11th Day Versus Dollar, Sliding for Fourth Week

By Andrew MacAskill and Kim-Mai Cutler

Aug. 15 (Bloomberg) -- The pound fell for an 11th day against the dollar, the longest run of declines in at least 37 years, on speculation an economic slowdown will spur the Bank of England to reduce interest rates.

The U.K. currency was poised for a fourth weekly drop, the most since December, after Bank of England Governor Mervyn King said two days ago there was a ``chill in the economic air'' as unemployment rose in July by the most in almost 16 years. Growth is being hurt as tourism flags and tax receipts fall.

``Already this summer we are seeing the start of what we believe is going to be an aggressive move lower in yields and also the pound as the bearish developments in asset markets and the economy continue to overwhelm,'' a team led by Tom Fitzpatrick, global head of currency strategy in New York at Citigroup Global Markets Inc., wrote in an investor report yesterday.

The pound lost 0.7 percent to $1.8561 as of 7:59 a.m. in London, from $1.8698 yesterday. The streak was the longest since at least January 1971. The currency, poised for a 3.4 percent decline in the week, tumbled 6.4 percent since July 31, sending it to a 22-month low. The pound was at 79.41 pence per euro, from 79.28 pence.

The weakening currency underscores concern a slumping housing market is pushing Europe's second-biggest economy toward a recession. A drop in house prices in July brought the property market to a ``virtual standstill,'' the Royal Institution of Chartered Surveyors said this week. The economy will grow about 0.1 percent on a year-on-year basis in the first quarter of 2009, compared with a previous prediction of 1 percent, according to bank forecasts published two days ago.

Tourism Drops

The number of foreign tourists visiting the U.K. in the second quarter fell as financial concerns affect the economic outlook in other European countries, the Financial Times reported. Visits by overseas residents dropped 5 percent from the previous quarter, seasonally adjusted, and in the year to the end of June visitor numbers declined 3 percent, the FT said, citing Britain's Office for National Statistics.

Merrill Lynch & Co. booked $29 billion of losses from U.S. subprime mortgages and collateralized debt obligations through its U.K. unit, making it unlikely it will pay U.K. taxes for years to come. Most of the losses were recorded this year, including $5 billion from the sale of $30.6 billion in collateralized debt obligations, the New York-based firm said in an Aug. 5 filing with the U.S. Securities and Exchange Commission.

Bonds Decline

Government bonds rose, with the yield on the 10-year gilt falling 3 basis points to 4.61 percent. The price of the 5 percent security due March 2018 rose 0.20, or 2 pounds per 1,000-pound ($1,858) face amount, to 102.99. The yield on the two-year gilt, which is more sensitive to the outlook for interest rates, dropped 2 basis points to 4.54 percent. Bond yields move inversely to prices.

Britain's sputtering economy has already sent the pound below the level at which it's forecast to end 2008. The currency will be worth $1.89 and 80 pence per euro by year-end, according to the median forecast of analysts and strategists surveyed by Bloomberg.

The yield on the 10-year note will end the year at 4.87 percent, according to a separate survey.

The pound fell 6.4 percent versus the dollar this year, after being little changed against the U.S. currency as recently as July 31. It's down 7.4 percent against the euro in 2008.

To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net;
Last Updated: August 15, 2008 03:10 EDT