By Paul Dobson Nov. 10 (Bloomberg) -- The pound fell from a three-month high against the dollar after Fitch Ratings said the U.K.’s sovereign credit rating is most at risk among top-rated nations. Sterling dropped versus 15 of the 16 most-traded currencies tracked by Bloomberg as David Riley, Fitch’s head of global sovereign ratings, said Britain needs “the largest budget adjustment” among countries it rates AAA. Standard & Poor’s has a “negative” outlook on the U.K.’s top-level rating after lowering it from “stable” in May. Reports published today show U.K. house prices and retail sales are increasing. “It was a warning shot to the U.K. authorities that they need to get their house in order,” said Lee Hardman, a foreign- exchange strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd.,. “There’s still a lot of risk if policy makers don’t come up with a credible plan” to restore fiscal stability, he said. The U.K. currency declined as much as 0.9 percent, the most since Oct. 23, to $1.6602 and was at $1.6713 as of 2:48 p.m. in London. The pound slid 0.1 percent to 89.61 pence per euro. Fitch expects the U.K. government “will articulate a stronger fiscal consolidation program next year,” and has a “stable” outlook for the country’s rating, Riley said. The U.K. is among “resilient” Aaa rated countries, Pierre Cailleteau, managing director of sovereign ratings at Moody’s, said in an interview in Brussels on Nov. 6. ‘Necessary Action’ “We have assured people that we’re taking the necessary action to cut the deficit in half,” Prime Minister Gordon Brown told a press conference in London today. “Our debt levels are roughly the same when this crisis ends as America, as France, as Germany.” The pound pared its decline after the Department for Communities and Local Government said today house prices rose 1.2 percent in September from the month before. The Royal Institution of Chartered Surveyors said in its monthly survey published overnight that the number of real- estate agents saying prices rose exceeded those reporting declines by the most since December 2006. A British Retail Consortium survey released today showed stores posted their best October sales growth since 2002. A downgrade of the U.K.’s credit rating is unlikely at the moment, Chris Turner, head of foreign-exchange strategy at ING Financial Markets, said in a Bloomberg Television interview. “Though sterling fell very sharply in Asia, Fitch did reiterate a stable outlook,” he said. “Sterling bounced back quickly.” Budget Deficit Britain last month reported the biggest budget deficit for any September since records began in 1993 as the recession ravaged tax revenue and increased welfare costs. The 14.8 billion-pound ($24.7 billion) shortfall compared with a deficit of 8.7 billion pounds a year earlier, the Office for National Statistics said in London on Oct. 20. The U.K. plans to issue 220 billion pounds of debt in the year through March 31. Increased government investment in U.K. banks will add an extra 13 billion pounds to the net cash requirement for this year, the Treasury said on Nov. 3. U.K. government bonds advanced today, with the yield on the 10-year gilt falling 5 basis points to 3.79 percent. The two- year security yield fell 1 basis point to 0.74 percent. The U.K. Debt Management Office said it sold 3.75 billion pounds of notes maturing in 2019 at an average yield of 3.92 percent in an auction today. The so-called bid-to-cover ratio for the sale was 1.96, the same as at a previous auction of the securities in July. “Its a pretty good cover,” said Mihail Bozinov, a strategist at UBS AG in London. That may be because “this bond was relatively cheap.” The short-sterling interest-rate futures contract expiring June 2010 fell for a fourth day to 1.17 percent as traders reduced bets that the Bank of England will raise borrowing costs. The central bank will publish a quarterly inflation report tomorrow that will show the inflation rate undershooting the 2 percent target, former policy maker David Blanchflower said today in a Bloomberg Television interview.

Source