U.K. Pound Declines as Confidence Stays at Lowest in Four Years

By Lukanyo Mnyanda

Sept. 3 (Bloomberg) -- The U.K. pound traded at the lowest level in 2 1/2 years against the dollar after a report showed confidence among Britain's consumers stayed at the weakest in at least four years.

The pound slipped for a seventh day after Nationwide Building Society said its index of sentiment taken from the responses of 1,000 people remained at 52 in August, the same as a month earlier, which was the lowest since the survey began in May 2004. A report today will probably show the nation's services industry shrunk last month, adding to evidence the economy is headed toward a recession.

The currency yesterday traded below $1.78 for the first time since April 2006 even as Prime Minister Gordon Brown announced measures to reverse a plunge in property values. The pound also fell to a record low against the euro on bets the Bank of England will resist cutting interest rates tomorrow, delaying an economic recovery.

Brown's measures ``have had little impact,'' analysts led by Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co., wrote in a client note yesterday. ``Failure to cut rates on Thursday may put further weight on the pound.''

The pound fell as much as 0.8 percent to $1.7703, the lowest level since April 2006, and was trading at $1.7738 at 8:06 a.m. in London, from $1.7839 yesterday. The U.K. currency traded at 81.44 pence per euro, after falling yesterday to 81.64 pence, an all-time low.

Brown yesterday proposed spending 1 billion pounds ($1.79 billion) sooner than planned to help the housing market recover from its worst slump in at least 18 years. Britain's building industry contracted last month, a survey showed yesterday.

Darling's Views

Gilts rose today, with the yield on the 10-year note falling 4 basis points to 4.46 percent. The 5 percent security due March 2018 gained 0.29, or 2.9 pounds per 1,000-pound face amount, to 104.16. The yield on the two-year note, more sensitive to interest-rate changes, fell 5 basis points to 4.42 percent.

The pound's depreciation accelerated since Chancellor of the Exchequer Alistair Darling told the Guardian newspaper at the weekend the U.K. faces its biggest economic slowdown in 60 years. He said later he was referring to the global economy.

``We face a unique set of circumstances that we have not seen in a generation,'' Darling said in an interview broadcast on U.K. television channels yesterday. ``I remain optimistic that we can get through it. We will get through it.''

BNP Paribas SA, the most accurate currency forecaster in a 2007 Bloomberg survey, yesterday changed its year-end forecast for the pound against the dollar to $1.71, from a previous prediction of $1.88.

The Chartered Institute of Purchasing and Supply will probably say today its index based on a survey of about 700 service companies dropped to 47 points last month, from 47.4 in July, according to economists polled by Bloomberg. That would be the fourth month the reading has been below the 50 level that indicates expansion. The data is scheduled for release at 9:30 a.m. in London.

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