Britain's currency also dropped for a third day versus the euro as futures prices showed traders are betting the Bank of England will this year add to its three rate reductions since December, after keeping borrowing costs unchanged tomorrow. The pound extended its drop as a government report today showed U.K. manufacturing production unexpectedly contracted in March.
The pound fell as much as 0.9 percent to $1.9557, the lowest level since Feb. 21, and was at $1.9579 by 10:15 a.m. in London. It also slipped to 79.01 pence per euro, from 78.70 pence. Britain's currency will fall to $1.89 and 81 pence per euro in three months, Klawitter forecast.
Gilts fell as a rally in European stocks damped demand for the safety of government debt, paring losses after the manufacturing report.
The yield on the two-year note rose 1 basis point to 4.42 percent. The price of the 4.75 percent security due June 2010 dropped 0.02, or 20 pence per 1,000-pound ($1,958) face amount, to 100.66. The 10-year gilt yield gained 2 basis points to 4.69 percent. Yields move inversely to bond prices.
An index of consumer sentiment taken from the responses of 1,000 people declined seven points to 70, the lowest level since the survey began in May 2004, Nationwide, Britain's fourth- biggest mortgage lender, said today in an e-mailed statement.
Factory output fell 0.5 percent, compared with a 0.4 percent gain in February, the Office for National Statistics said in London. Economists predicted no change, according to the median of 33 estimates in a Bloomberg News survey. On the year, factory production rose 0.6 percent. Industrial production contracted 0.5 percent, the report showed.
Investors increased bets borrowing costs will fall this year, with the implied yield on the sterling interest-rate futures contract due December dropping to 5.16 percent, from 5.18 percent yesterday and 5.36 percent two weeks ago.
The Bank of England will leave its benchmark rate on hold at tomorrow's monthly policy meeting, according to the median forecast of 61 economists surveyed by Bloomberg.