Pound Falls Against Euro Before Bank of England Rate Decision

By Andrew MacAskill

Aug. 7 (Bloomberg) -- The pound fell against the euro and was little changed versus the dollar before a Bank of England meeting today at which policy makers will probably leave the benchmark interest rate unchanged at 5 percent.

The British currency weakened to 79.29 pence per euro as of 7:01 a.m. in London, from 79.11 pence yesterday. It was also at $1.9480, from $1.9477 yesterday, when it slipped to $1.9467, the lowest level since June 16.

The nine-member Monetary Policy Committee, facing the threat of a recession and the fastest inflation in more than a decade, will keep the main rate on hold for a fourth month, according to all 60 economists in a Bloomberg News survey. The bank, led by Governor Mervyn King, announces the decision at noon in London and publishes new quarterly forecasts on Aug. 13.

The pound slipped yesterday after an industry report showed U.K. consumer confidence dropped last month by the most in at least four years and a separate survey found the economy grew at the slowest pace in three years in the quarter through July.

Government bonds advanced yesterday, pushing yields to their lowest levels in almost three months. The yield on the two-year gilt dropped 5 basis points to 4.71 percent. The price of the 4.75 percent security due June 2010 rose 0.09, or 90 pence per 1,000- pound ($1,948) face amount, to 100.07. The 10-year gilt yield declined 2 basis points to 4.75 percent. Yields move inversely to bond prices.

The pound has slipped 1.9 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.

The European Central Bank also decides on rates today. Policy makers are expected to keep the main refinancing rate at 4.25 percent, according to all 60 economists in a Bloomberg survey.

To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net