U.K. Pound Falls, Gilts Rise on Rightmove Report, Blanchflower

By Ron Harui and Andrew MacAskill

July 21 (Bloomberg) -- The British pound fell against the dollar and U.K. government notes rose after an industry report showed U.K. house prices dropped in July for the first time since at least 2002, adding to signs the economy is slowing.

The currency also depreciated versus the euro after Bank of England policy maker David Blanchflower said in an interview with the Guardian newspaper the central bank must lower interest rates to support the economy, which is entering a recession that may last more than a year.

``Blanchflower said there may be three to four quarters of contraction, and the housing data were weak,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``We'll likely see downward pressure on the pound.''

The U.K. currency slid to $1.9947 by 9:30 a.m. in London from $1.9989 late in New York on July 18. Against the euro, it declined to 79.69 pence from 79.29 pence. The pound may weaken to 1.9800 today, Lee forecast.

The pound was the second-worst performer today against the dollar among the 16 most-active currencies tracked by Bloomberg.

``We are going into recession and we are probably in one right now,'' Blanchflower was cited by the Guardian as saying. ``It's not too late to stop it but we have to act right now.''

The 10-year note rose, sending the yield down 3 basis points down to 5 percent. The price of the 5 percent security due March 2018 climbed 0.25, or 2.5 pounds per 1,000-pound ($1,995) face amount, to 99.95.

The yield on the two-year gilt fell 4 basis points to 5.06 percent. Yields move inversely to bond prices.

House Prices

The average asking price for a home in the U.K. fell an annual 2 percent to 235,219 pounds ($469,544), Rightmove Plc, Britain's most-used property Web site, said in a statement today. On the month, prices declined 1.8 percent, the biggest drop since December.

The Ernst & Young Item Club said today in a report the U.K. economy will come close to a recession as tightening credit markets and faster inflation squeeze consumer spending.

The odds of the Bank of England raising its 5 percent benchmark interest rate in August were 10 percent on July 18, compared with 15 percent on July 11, according to a Credit Suisse Group index based on interest-rate swaps.

To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net