U.K. Pound Slides Against Dollar, Euro Before Inflation Report

By Andrew MacAskill

Sept. 16 (Bloomberg) -- The British pound fell against the dollar and snapped an eight-day gain versus the euro before a government report that may show inflation accelerated last month to more than double the central bank's target.

Consumer prices rose 4.6 percent from a year earlier, according to the median forecast of 30 economists surveyed by Bloomberg. That would be the fourth month the rate topped the government's 3 percent upper limit.

``Inflation is going to spike and then come down and that is going to allow the Bank of England to cut interest rates soon,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. ``We are going to see sterling cede further ground.''

The British currency dropped to $1.7941 as of 8:15 a.m. in London, from $1.8007 yesterday, when it rose for the third day. Against the euro, the pound declined to 79.35 pence, from 79.16 pence, paring a 3.2 percent gain during the streak.

The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, was little changed at 86.75, according to Deutsche Bank AG. The measure is down 8.4 percent this year.

Britain's Office for National Statistics is scheduled to report the inflation figures at 9:30 a.m. in London. Inflation in July increased at a 4.4 percent rate, the most since comparable records began in 1997. August retail price index statistics will also be reported today.

Bonds Advance

The U.S. Federal Reserve will decide interest rates today, with futures showing a 68 percent chance it will cut the key rate by a quarter-point.

The Federal Open Market Committee is predicted to keep its benchmark rate at 2 percent, according to the median of 105 economists surveyed by Bloomberg. The announcement is scheduled for 2:15 p.m. in Washington.

U.K. government bonds advanced, with the yield on the two- year note, which is more sensitive to interest-rate expectations, falling 6 basis points to 4.27 percent. The 4.75 percent security due June 2010 climbed 0.09, or 90 pence per 1,000-pound ($1,795) face amount, to 100.78.

The 10-year gilt yield slid 6 basis points to 4.40 percent. Bond yields move inversely to prices.

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