The currency dropped from near the highest level in three weeks as investors reduced bets the central bank will raise interest rates to curb inflation. Gilts snapped a two-day decline after Gieve told business leaders yesterday property values ``have further to fall'' and the ``shock to expectations appears to be having a wider impact on confidence.''
The pound slipped 0.4 percent to 78.96 pence per euro by 12:27 p.m. in London, from 78.61 pence yesterday, when it gained to 78.49, the highest level since June 2. It rose 0.3 percent to $1.9783, headed for its biggest weekly advance against the U.S. currency since the week ending Nov. 2.
Britain's currency may ``retest'' 80 pence per euro in the next three months, Cole said. It rose by the most since June 9 yesterday, after a government report showed retail sales in May surged the most since records began.
Investors reduced bets the central bank will lift rates in the third quarter, with the implied yield on the short-sterling futures contract due September falling 3 basis points to 6.3 percent, after gaining 13 basis points in the week through yesterday.
Gieve, who is planning to quit the central bank next year, and his eight colleagues on the Monetary Policy Committee last month forecast economic growth would slow to the weakest since 1992 later this year. They kept the benchmark rate at 5 percent on June 5 after three quarter-point reductions since December.
Government bonds rose, pushing the yield on the two-year gilt down 7 basis points to 5.44 percent. The price of the 4.75 percent security due June 2010 rose 0.13, or 1.3 pounds per 1,000-pound ($1,974) face amount, to 98.72.
The pound has dropped this month amid speculation flagging growth will prevent policy makers from raising rates even as inflation accelerates. HBOS Plc, the U.K.'s biggest mortgage lender, said yesterday prices will fall as much as 9 percent during 2008, higher than its previous forecast.