U.K. Pound Declines to 21-Month Low as Housing Slump Deepens

By Kim-Mai Cutler

Aug. 12 (Bloomberg) -- The pound slid to its lowest level in almost 21 months against the dollar after an industry report showed U.K. house prices fell in July, adding to evidence the economy is slowing.

The currency snapped a three-day gain versus the euro after the Royal Institution of Chartered Surveyors said the number of real-estate agents and surveyors reporting lower prices exceeded those reporting gains by 83.9 percentage points last month as the credit squeeze brought the market to a ``virtual standstill.''

``The pound is still being swept along by a broader dollar move,'' said Michael Metcalfe, head of macro strategy at State Street Global Markets in London. ``There is also an assumption the Bank of England will have to capitulate and focus on growth rather than inflation.'' Investors should sell the pound versus the dollar, Metcalfe said.

The pound fell as much as 0.7 percent to $1.8970, the weakest level since November 2006, and was at $1.8985 by 9:52 a.m. in London, from $1.9108 yesterday. The British currency has lost 4.8 percent against the dollar in the past month. It slipped to 78.30 pence per euro, from 78.03 pence.

All 11 regions in the U.K. tracked by RICS showed negative price balances on the month, the group said today.

Property values declined by the most in at least a quarter of a century in July, HBOS Plc reported on Aug. 7. Banks have curbed lending as they nurse losses and writedowns from the collapse of the U.S. subprime-mortgage market that have totaled about $493 billion worldwide.

Quicker Inflation

The pound stayed lower after a report showed U.K. inflation accelerated to 4.4 percent in July, more than double the central bank's 2 percent target, according to the Office for National Statistics. That exceeded the 4.2 percent median estimate of 38 economists in a Bloomberg News survey.

Technical indicators suggest the pound's drop may be excessive. The 14-day relative strength index fell to 22.2. A level below 30 suggests that's a currency's decline is extreme and a reversal may be imminent.

Government bonds rose, with the yield on the two-year gilt falling 4 basis points to 4.70 percent. The price of the 4.75 percent security due in June 2010 climbed 0.07, or 70 pence per 1,000-pound ($1,906) face amount, to 100.07.

The yield on the 10-year gilt fell 4 basis points to 4.67 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net