The pound also declined against the euro after Bank of England Governor Mervyn King said policy makers face a ``difficult balancing act'' in setting interest rates as economic growth slows at the same time inflation is accelerating. The U.K. currency has also dropped as signs the U.S. economy is improving led to speculation the Federal Reserve will signal that it's close to pausing after six rate cuts.
The pound declined 1 percent to $1.9722 by 1:33 p.m. in London, from $1.9914 late yesterday. It was at 78.90 pence per euro, from 78.62. The U.K. currency is still headed for its first monthly gain against Europe's single currency since October.
King said the inflation rate will rise above 3 percent in the next year and keep close to the government's upper limit for longer than it did in 2007.
Earlier, the Bank of England said lenders granted 64,000 loans for house purchases last month, compared with 72,000 in February. Economists in a Bloomberg survey had forecast a drop to 66,000.
The mortgage-approvals report came a day after a private survey showed the average cost of a property in England and Wales slipped 0.6 percent in April.
The central has reduced its main lending rate three times since December to 5 percent to avert a recession as the country's housing market slows, hurting consumer confidence and spending. The rate reached a six-year high of 5.75 percent in July.
House prices fell 2.5 percent last month, the most since 1992, HBOS Plc said. The average cost of a home in England and Wales dropped 0.6 percent in April, the most since December 2004 Hometrack Ltd., a London-based research company, said yesterday.