Pound Falls

The pound fell to a two-week low against the dollar on speculation accelerating inflation will prevent the Bank of England cutting interest rates tomorrow to bolster the U.K. economy.

The pound also fell versus the euro after the country's fourth-biggest mortgage lender said consumer confidence dropped in May to the lowest level in four years and an industry report showed growth in services contracted for the first time in five years. The central bank will hold the main rate at 5 percent at its meeting starting today, according to a Bloomberg News survey.

The U.K. currency dropped as much as 0.5 percent to $1.9536, the lowest level since May 20, and was at $1.9561 by 12:21 p.m. in London. The pound also fell to 79.04 pence per euro, from 78.66 pence yesterday, and weakened versus 14 of the 16 most- traded currencies tracked by Bloomberg.

Nationwide Building Society's index of U.K. consumer sentiment, taken from the responses of 1,000 people, today declined 1 point to 69, the lowest level since the survey began in May 2004. An index based on replies from about 700 service companies surveyed by the Chartered Institute of Purchasing and Supply fell to 49.8. That's the first reading below 50, which indicates contraction, since March 2003. Economists had predicted a reading of 50.5, according to 35 forecasts in a Bloomberg survey.

The pound extended its decline after the Wall Street Journal reported Lehman Brothers Holdings Inc. may have to put itself up for sale, damping appetite for higher-yielding currencies. The U.K.'s benchmark rate is the highest among the Group of Seven major economies.

The pound continued the longest run of losses against the dollar in two months after Federal Reserve Chairman Ben S. Bernanke yesterday signaled policy makers will pause lowering rates and said they are ``attentive'' to the impact of the falling U.S. currency.

Today's reports were the last economic data before Britain's central bank met today to set borrowing costs. Inflation that's exceeded the Bank of England's 2 percent target for the past seven months amid spiraling food and oil costs is preventing policy makers reducing rates to bolster the economy, futures trading signaled.

Pound Falls

TradingEconomics.com, Bloomberg
6/4/2008 6:35:24 AM