Pound Headed for Weekly Loss as BOE’s Gieve Says U.K. at ‘Risk’

By Lukanyo Mnyanda

Feb. 20 (Bloomberg) -- The U.K. pound headed for a second weekly loss versus the dollar as U.K. home repossessions rose to a 12-year high and Bank of England Deputy Governor John Gieve said Britain is threatened with a decade-long slump.

The U.K. currency also weakened as the FTSE 100 Index of equities dropped more than 6 percent this week and Europe’s Dow Jones Stoxx 600 Index slid to a five-year low. Policy makers are fighting to protect Britain from the “serious risk” of a depression similar to that suffered by Japan in the 1990s, Gieve said yesterday.

“The financial sector is still in disarray and there’s a high degree of risk aversion,” said Lee Hardman, a London-based currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “Any kind of recovery in the pound will look futile.”

The pound was little changed at $1.4282 by 1:13 p.m. in London, leaving it 0.3 percent lower in the week. The U.K. currency bought 134.54 yen, from 134.65 yesterday and 131.89 a week ago. It was at 88.12 pence per euro, from 88.66 pence yesterday and from 89.63 on Feb. 13.

“Do we face a 10-year depression like Japan? That is a risk, and a risk that we and other policy makers are taking very seriously,” Gieve said after a speech at the London School of Economics. “It’s a serious risk but we are addressing it. There’s a huge amount of policy easing in the pipeline.”

The central bank this month cut its main rate to a record 1 percent, as its struggles to prevent the recession from deepening. As rates head to zero, policy makers are preparing for so-called quantitative easing. The Bank of England bought 340 million pounds in commercial paper during the first week of operations for its asset purchase facility, according to a statement today.

Home Repossessions

Banks took possession of 40,000 properties last year, a 54 percent increase from 2007, the London-based Council of Mortgage Lenders said. It predicted the total will reach 75,000 this year. Ministry of Justice data showed 142,626 repossession proceedings began in courts in 2008, the most since 1991.

The pound pared losses today after retail sales climbed an unexpected 0.7 percent in January, according to the Office for National Statistics. That compared with the 0.1 percent drop predicted in a Bloomberg survey.

“We’ve had some nice retail data,” said Elisabeth Andreew, chief currency strategist in Copenhagen at Nordea AB, Scandinavia’s biggest bank. “There’s already a lot of bad news priced in the pound.”

U.K. government bonds rose as slumping equity markets spurred demand for the relative safety of fixed-income debt.

The gains pushed the yield on the 10-year gilt down seven basis points to 3.44 percent, a decline of 11 basis points in the week. The 4.25 percent security maturing March 2019 rose 0.60, or 6 pounds per 1,000-pound face amount, to 108.93. The two-year yield fell two basis points to 1.46 percent. Yields move inversely to bond prices.

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