By Anna Rascouet and Morwenna Coniam Sept. 21 (Bloomberg) -- The pound weakened to its lowest level in five months against the euro as U.K. stocks fell for the first time in seven days, sapping demand for the currency. The British currency also fell against the dollar as Standard Bank Plc cut its forecast for sterling. The Bank of England said “the long-run sustainable real exchange rate” for sterling may have fallen during the financial crisis. The FTSE 350 Banks Index of financial shares dropped 1.8 percent. “The market isn’t enamored with sterling,” said Steven Barrow, head of Group of 10 currency research in London at Standard Bank. “The Bank of England is giving a good reason for this to be the case.” Sterling dropped 0.1 percent to 90.53 pence per euro as of 11:47 a.m. in London, after depreciating to 90.78 pence, the weakest level since April 24. The British currency declined 0.6 percent to $1.6176. The yield on the two-year gilt increased 2 basis points to 0.86 percent. The 10-year note yield was little changed at 3.73 percent. The difference in yield, or spread, between the two securities was at 288 basis points, within 3 basis points of the most since at least January 1992. Standard Bank said the pound will weaken to 0.95 pence per euro and $1.63 in six months, from previous forecasts of 0.86 pence per euro and $1.74. The financial crisis began to narrow the trade gap between nations with trade deficits and surplus countries such as China by lowering domestic demand and prompting the depreciation in the British currency and its U.S. counterpart, the Bank of England said in its quarterly bulletin. Recovery in Asian economies may raise the cost of energy and pose a risk to consumer prices in the U.K., Bank of England policy maker Andrew Sentance said in a speech in London today. “The latest evidence suggests that the U.K. and other major economies are starting to recover from the deep recession triggered by the global financial crisis,” he also said.

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