Pound Drops as U.K. Consumer Confidence Slips Most Since 2004

By Lukanyo Mnyanda

Aug. 6 (Bloomberg) -- The pound fell against the euro after an industry survey showed U.K. consumer confidence dropped in July by the most in at least four years as house prices slumped.

The British currency weakened to 79.16 pence by 6:35 a.m. in London, from 79.06 pence yesterday. It was also at $1.9571, from $1.9547 yesterday, when it slipped to $1.9521, the lowest level since June 18.

An index of sentiment, taken from the responses of 1,000 people from June 23 to July 20, declined 11 points to 51, the lowest level and the biggest drop since May 2004, Nationwide Building Society, Britain's second-biggest mortgage lender, said today. The economy grew at the slowest pace in three years in the quarter through July, the National Institute of Economic & Social Research said in a report today.

Signs that Europe's second-largest economy is headed toward a recession will force the Bank of England to keep its key interest rate at 5 percent tomorrow even as inflation picks up, all 60 economists surveyed by Bloomberg News say. Policy makers cut the rate three times since November as growth sputtered.

The yield on the two-year government note dropped 5 basis points yesterday to 4.73 percent. The price of the 4.75 percent security due June 2010 rose 0.09, or 90 pence per 1,000-pound ($1,957) face amount, to 100.03. The 10-year yield fell 5 basis points to 4.76 percent. Yields move inversely to bond prices.

The pound has slipped 1.5 percent versus the dollar this year and 7.2 percent against the euro.

Britain's faltering economy will weaken the currency 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 4.87 percent, according to a separate survey.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net