U.K. Pound Slides, Gilts Advance as Retail Sales Index Plunges

By Andrew MacAskill and Agnes Lovasz

July 29 (Bloomberg) -- The pound fell and gilts rose after an index of U.K. retail sales sank in July to the lowest level in a quarter-century and mortgage approvals slid, the latest indications the economy may be tilting toward a recession.

The pound retreated against 15 of its 16 major currency counterparts after the Confederation of British Industry said its survey of 82 retailers showed 61 percent sold fewer goods than a year earlier. Loans granted for house purchases dropped to 36,000 last month, the weakest level since at least 1999, the Bank of England said today. Gilts advanced for a second day.

``U.K. economic prospects have been bleak for a while and are getting worse,'' said Paul Robinson, a currency strategist in London at Barclays Plc and a former Bank of England economist. ``This report is another indication of that. It adds to the evidence the U.K. economy is flirting with recession.''

The British currency declined to 79.07 pence per euro as of 12:43 p.m. in London, from 78.95 yesterday. It was at $1.9878, from $1.9939.

The index for durable household goods such as refrigerators, furniture and booksellers slumped to minus 100, the CBI said. Grocers and footwear stores were the only outlets to report a positive sales balance.

U.K. government bonds rose, erasing declines, with the yield on the 10-year gilt losing 4 basis points to 4.91 percent. The price of the 5 percent security due March 2018 rose 0.29, or 2.9 pounds per 1,000-pound ($1,987) face amount, to 100.65. The yield on the two-year gilt declined 4 basis points to 4.89 percent. Bond yields move inversely to prices.

The government sold 2.5 billion pounds of 10-year notes at an average yield of 5.01 percent, according to the U.K. Debt Management Office. Investors sought a record 2.47 times the amount of securities offered, the so-called bid-to-cover ratio.

Traders pared bets the central bank will cut interest rates for a third time this year, with the implied yield on the December short-sterling futures contract at 5.75 percent, down from 5.79 percent yesterday and 6.23 percent on June 30.

To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net