U.K. Pound Falls Against Dollar Before Mortgage Approvals Data

By Lukanyo Mnyanda and Andrew MacAskill

Aug. 26 (Bloomberg) -- The U.K. pound fell against the dollar, extending a fifth week of declines, the longest losing streak since February 2006, before an industry group releases mortgage approvals data for last month.

The British currency has slumped 7 percent versus the dollar this year as the credit crunch has starved the housing market of loans and threatened to push the economy into recession. The number of loans approved slumped to the lowest since at least 1997 in June, the British Bankers' Association said last month. The Bank of England may cut interest rates this year, according to Bloomberg News survey of economists.

``The market is starting to price in a rate cut before year- end and I think that is likely to persist in putting sterling under significant pressure,'' said Lee Hardman, a currency strategist in London at the Bank of Tokyo-Mitsubishi Ltd. ``We have seen a sharp cutback in the number of loans offered to buyers and that's likely to weigh on U.K. house prices.'' The currency may end the year at $1.82, Hardman said.

The pound traded at $1.8368 by 9:07 a.m. in London, near the lowest level since July 2006, from $1.8532 yesterday in New York. Against the single European currency, the pound rose 0.2 percent to 79.45 pence after the Munich-based Ifo institute's business climate index fell to a three-year low in August.

The British currency dropped against the euro and the dollar last week after a government report showed economic growth stagnated in the second quarter, adding to pressure on the central bank to cut interest rates to revive the economy, the second largest in Europe.

Lower Rates

Half of the economists in a Bloomberg News survey on Aug. 22 forecast a rate reduction before the end of 2008, up from a quarter polled on Aug. 8. The bank has held its benchmark rate at 5 percent since April as the inflation rate climbed to 4.4 percent in July.

Governor Mervyn King, who said the U.K. faces a ``painful adjustment,'' is also struggling with an inflation rate running at more than twice the bank's its 2 percent target. He said Aug. 13 a ``reasonable person'' would expect price gains ``to remain high for a while,'' and that the consumer-price index would peak at around 5 percent.

The U.K. economy faltered after banks choked off credit following the collapse of the U.S. subprime-mortgage market. The BBA is scheduled to release the mortgage data at 9:30 a.m. in London.

Gilts rose, with the yield on the 10-year bond dropping 7 basis points to 4.52 percent. The 5 percent security due March 2018 rose 0.58, or 5.8 pounds per 1,000-pound face amount, to 103.71. The yield on the two-year gilt, which is more sensitive to interest rate changes, fell 8 basis points to 4.60 percent. Bond yields move inversely to prices.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net