Pound Falls Against Dollar, Euro After U.K. Home Prices Slide

By Gavin Finch

Sept. 22 (Bloomberg) -- The pound declined for a third day against the euro and dropped versus the dollar after an industry report said U.K. house prices slid a fourth month in September, adding to evidence Britain has entered a recession.

The average asking price for a home fell 1 percent from August to 227,438 pounds ($416,735), Rightmove Plc, Britain's most-used property Web site, said today. From a year earlier, prices lost 3.3 percent. Chancellor of the Exchequer Alistair Darling will pledge today to tackle the failings at the root of the financial storm that swept across global markets last week.

The pound weakened to 79.17 pence per euro as of 6:40 a.m. in London, from 78.98 at the end of last week. Against the dollar, the pound slipped to $1.8304, from $1.8318.

The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, fell to 87.49, according to Deutsche Bank AG. The measure is down 7.6 percent this year.

The property market may face further weakness in coming months, provoking a ``painful'' adjustment for many families, Bank of England Chief Economist Spencer Dale said last week. HBOS Plc agreed to a takeover by Lloyds TSB Group Plc after plunging home values and the financial-market crisis destroyed the value of the company and added to the threat of a recession.

The U.K. economy entered a recession in July, forecasts by the Confederation of British Industry, the country's largest business lobby, show. Growth stalled in the second quarter, ending the longest period of uninterrupted economic expansion in more than a century.

Interest Rates

``Wherever weaknesses are found in the financial system, I will take steps to deal with them,'' Darling will tell the ruling Labour Party's annual conference in Manchester, northern England, according to comments released by his office. He will pledge ``measures to help prevent the mistakes and misjudgments which caused the crisis.''

Bank of England policy makers kept interest rates at 5 percent on Sept. 4, as they weighed the risk of accelerating inflation with the danger that mounting bank losses will push Europe's second-biggest economy into its first recession since 1991. Governor Mervyn King voted with seven other members of the Monetary Policy Committee to keep interest rates on hold, minutes of the meeting showed yesterday.

U.K. two-year government notes fell for the first time in five days on Sept. 19, sending the yield up from the lowest level in five months, as a U.S. plan to shift tainted assets off banks' balance sheets sent stocks surging worldwide, sapping demand for the safest assets.

The yield on the two-year note climbed 24 basis points to 4.39. The 4.75 percent security due June 2010 slid 0.39, or 3.9 pounds per 1,000-pound ($1,830) face amount, to 100.58. The 10- year gilt yield increased 19 basis points to 4.61 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net