Pound Declines

The pound dropped against the euro and traded near a two-year low versus the dollar after U.K. house prices posted their biggest annual decline in August since at least 2002, strengthening the case for lower interest rates.

The U.K. currency has tumbled more than 7 percent against the dollar this month amid speculation falling property prices and rising joblessness will push the economy, Europe's second largest, into a recession. It fell against the euro as Rightmove Plc, Britain's most-used property Web site, said the average asking price for a house fell almost 5 percent.

The British currency declined as much as 0.5 percent to 79.08 pence per euro and was at 78.79 pence by 1:05 p.m. in London, from 78.70 pence at the end of last week. It was at $1.8669, from $1.8668. It slipped to $1.8512 on Aug. 15, the lowest since July 26, 2006. The pound may drop to $1.82 by the end of the month, Stannard said.

Britain's currency dropped in each of the 11 trading days through Aug. 15, the longest run of losses in at least 37 years, amid speculation the faltering economy will force the central bank to cut rates.

The pound slumped almost 3 percent against the dollar last week, its biggest five-day loss since the period through July 1, 2005, after Bank of England Governor Mervyn King said the housing market faces ``a significant adjustment'' as banks ration loans for homebuyers. Falling prices may exacerbate the economic slowdown as the threat of a recession looms and unemployment rises the most in 16 years.

Britain's gross domestic product will either stagnate or contract in the next two or three quarters, meaning the economy may fall into a recession, the British Chambers of Commerce said in forecasts released today.

Pound Declines

TradingEconomics.com, Bloomberg
8/18/2008 6:32:59 AM