U.K. Pound Weakens for Sixth Day Before Brown's Housing Plan

By Lukanyo Mnyanda and Andrew MacAskill

Sept. 2 (Bloomberg) -- The British pound weakened for a sixth day, dropping to the lowest level since April 2006 against the dollar, before Prime Minister Gordon Brown announces a plan to reverse a slump in property values.

Brown will today propose spending 1 billion pounds ($1.8 billion) sooner than planned to help the housing market, people with knowledge of the plan said. Chancellor of the Exchequer Alistair Darling told the Guardian newspaper at the weekend the U.K. faces the worst economic slump in 60 years.

``The fear is that the economic downturn has gained momentum,'' Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France's biggest bank, wrote in a research note yesterday. ``The burden of adjustment is currently falling on sterling.''

The pound fell to $1.7893 at 8:16 a.m. in London, from $1.8014 yesterday, the first time it has traded below $1.79 since April 2006. It also slid to 81.24 pence per euro, from 81.13 yesterday. Earlier, it dropped to 81.64, its lowest level since the introduction of the single currency in 1999.

Traders are paring bets on higher borrowing costs in the U.K., with the implied yield on the March short-sterling futures contract falling 1 basis point to 5.05 percent today. It was 5.50 percent Aug. 1. The Bank of England will keep the nation's key interest rate at 5 percent at a meeting in two days' time, according to a Bloomberg News survey of economists.

A Credit Suisse Group index of probability derived from overnight indexed swap rates showed traders are attributing 8 percent odds to a 25 basis-point rate cut, up from 4 percent at the start of the week.

The 10-year government bond fell for the first time since Aug. 27, with the yield rising 3 basis points to 4.48 percent. The 5 percent security due March 2018 dropped 0.20, or 2 pounds per 1,000 pound face amount, to 104.01. The yield on the two- year note rose 2 basis points to 4.42 percent.

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