Pound Declines

The pound fell against the euro, snapping a two-day gain, on mounting speculation a housing-market slump caused by the credit squeeze is curbing economic growth.

The U.K. currency was little changed versus the dollar after a private report today said U.K. economic growth weakened to a three-year low in the quarter through May. Homebuilders including Galliford Try Plc and Barratt Developments Plc were downgraded by Merrill Lynch & Co., which said falling British house prices may lead to writedowns in land values.

The pound fell as much as 0.3 percent to 79.39 pence per euro, and was at 79.24 pence by 10:57 a.m. in London, from 79.15 yesterday. It fell to $1.9492, the lowest since June 5, before trading at $1.9556, from 1.9544.

The U.K. currency may ``easily'' decline to $1.93, its lowest level this year, and extend losses to $1.80 in the second half of 2008, Stannard forecast.

Gross domestic product rose 0.2 percent, a third of the pace of the three months through February, the National Institute of Economic and Social Research said in an e-mailed statement. The group, which advises the Bank of England and the Treasury, measured economic growth at 0.4 percent in the quarter through April.

The pound extended declines as claims for jobless benefits in the U.K. increased for a fourth month, rising by 9,000 to 819,300 in May, the Office for National Statistics said today. Economists predicted an increase of 8,000, the median of 33 forecasts in a Bloomberg survey show.

The U.K. currency fell even as traders bet the Bank of England will raise interest rates to curb inflation in Europe's second largest economy.

Pound Declines

TradingEconomics.com, Bloomberg
6/11/2008 6:35:44 AM