By Agnes Lovasz
Nov. 6 (Bloomberg) -- The pound fell against the dollar before the Bank of England meets today to decide on interest rates amid mounting evidence the economy, Europe's second largest, is in a recession.
The British currency dropped versus the dollar for a second day. Policy makers will probably lower the key rate by half a percentage point to 4 percent, according to the median forecast of 60 economists surveyed by Bloomberg. A report by the National Institute of Economic & Social Research today said the economy contracted by 0.5 percent in October after shrinking by the same amount in the third quarter.
The pound declined to $1.5856 as of 7:32 a.m. in London, from $1.5910 yesterday. Against the euro, the U.K. currency rose to 81.13 pence, snapping a four-day decline, from 81.42 pence.
Bank of England Governor Mervyn King may need to lower the benchmark rate to zero from the current level of 4.5 percent, say economists including former policy maker Charles Goodhart and Citigroup Inc.'s Michael Saunders.
Traders expect the rate to drop by three-quarters of a point, according to a Credit Suisse Group AG index of probability based on overnight indexed swaps. The central bank announces its decision at noon today in London.
Government bonds rose yesterday, with the yield on the two- year gilt down 8 basis points to 2.74 percent. The 4.75 percent security due June 2010 gained 0.11, or 1.1 pounds per 1,000-pound ($1,585) face amount, to 103.10. The 10-year yield dropped 5 basis points to 4.42 percent. Bond yields move inversely to prices.
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
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