Pound Declines Against Dollar Before U.K. Manufacturing Report

By Agnes Lovasz

Aug. 1 (Bloomberg) -- The pound fell against the dollar before a report forecast to show U.K. manufacturing contracted in July, adding to evidence Europe's second-largest economy is edging closer to a recession.

The pound slipped to $1.9829 by 6:56 a.m. in London, from $1.9841 late yesterday. It fell to $1.9746 on July 30, the weakest since July 10. The British currency was at 78.48 pence per euro, from 78.64.

An index based on a survey of more than 600 manufacturers fell to 45.5 from 45.8 in June, according to the median of 27 economists in a Bloomberg News survey. A reading lower than 50 signals contraction in factory production.

The Chartered Institute of Purchasing and Supply data will be released at 9:30 a.m. in London.

Retail visits fell 2.6 percent from a year earlier, Experian Group Ltd. said today in an e-mailed report. The company forecasts sales volumes in the next 12 months will be ``the slowest period since the early 1990s,'' according to the report.

U.K. government bonds rose yesterday, with the yield on the 10-year gilt falling 4 basis points to 4.80 percent. The 5 percent security due March 2018 climbed 0.26, or 2.6 pounds per 1,000- pound ($1,983) face amount, to 101.47. The yield on the two-year gilt fell 2 basis points to 4.79 percent. Bond yields move inversely to prices.

Accelerating Inflation

Bank of England policy makers left the key interest rate unchanged at the past three meetings even as inflation accelerated to the fastest pace in 11 years. Prices rose 3.8 percent in June from a year earlier, almost double the central bank's 2 percent target.

The pound has fallen 6.9 percent against the euro this year as tumbling house prices and accelerating inflation slowed the pace of growth.

The prospect of higher interest rates receded this week, with the implied yield on the December short-sterling futures contract falling 8 basis points to 5.73 percent.

The faltering economy will weaken the pound to $1.90 and to 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 4.89 percent, according to a separate survey.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net