U.K. Pound Falls to One-Week Low Vs Euro


The U.K. pound fell to a one-week low against the euro after a government report showed economic growth stagnated in the second-quarter, strengthening the case for lower interest rates.

The pound declined for a fifth week against the dollar, the longest losing streak since February 2006, as the Office for National Statistics said yesterday U.K. gross domestic product was unchanged from the previous three months. Inflation risks ``have probably eased a little,'' the minutes of the Bank of England's August rate meeting showed this week.

The U.K. currency dropped as much as 0.7 percent to 79.89 pence per euro, the lowest level since Aug. 14, and was at 79.70 yesterday in London, from 79.32 on Aug. 21 and 78.70 a week ago. It was at $1.8589 from $1.8782 the day before. The pound may drop below $1.80 in 12 months, Hardman forecast. The pound has declined 6.8 percent this month, headed for the biggest monthly drop since October 1992, when it lost 12 percent.

Gross domestic product was unchanged from the first quarter, the Office for National Statistics said, compared with a previous estimate for growth of 0.2 percent. Economists had expected a 0.1 percent expansion, according to the median estimate of 34 economists in a Bloomberg News survey. Growth was 1.4 percent from a year earlier, the weakest since 1992.

The report adds to pressure on the Bank of England to set aside concerns about inflation and cut its benchmark interest rate, currently at 5 percent.

The U.K. economy faltered after banks choked off credit following the collapse of the U.S. subprime-mortgage market. Still, an inflation rate at more than twice its 2 percent target has prevented the Bank of England's from lowering interest rates to revive the economy.


TradingEconomics.com, Bloomberg
8/23/2008 10:28:50 AM