BLBG: Pound Drops After Item Club Says House-Price Declines to Resume
By Gavin Finch
Sept. 14 (Bloomberg) -- The pound fell against the dollar and the euro after Ernst & Young LLC’s Item Club said the U.K. housing-market slump will resume next year as the squeeze on mortgage lending persists.
The pound dropped from near the highest level in more than five weeks against the U.S. currency as the FTSE 100 Index declined 0.8 percent. The U.K. economy will only recover slowly from recession in the second half of the year as rising unemployment prompts consumers to curb spending, the European Commission said today.
“The medium-term outlook is still bearish in our view,” analysts led by Hans-Guenter Redeker in London at BNP Paribas SA wrote in a research note today. “The U.K. data mix continues to provide negative signals.”
The pound dropped 0.8 percent to $1.6535 as of 10:50 a.m. in London. Sterling weakened 0.4 percent to 87.86 pence per euro.
After “dipping” in the first half of 2010, house prices will then stagnate for two years, the research group, which uses the same economic model as the U.K. Treasury, said in a report today in London. Mortgage finance may “remain scarce and expensive” as banks rebuild balance sheets while the economy emerges from the recession, the Item Club said.
Martin Sorrell, chief executive officer of WPP Plc, the world’s largest advertising company, said he doesn’t see any signs of an economic recovery, the Wall Street Journal reported, citing an interview.
Gilt Auction
Gilts were little changed with the yield on the two-year government note at 0.85 percent and the 10-year gilt yield at 3.61 percent.
The U.K. sold 1 billion pounds ($1.7 billion) of 6 percent bonds due in 2028 today, with demand exceeded supply by 2.13 times, the London-based Debt Management Office said.
Britain will auction 237 billion pounds in the fiscal year ending 2011, from 220 billion pounds the government projected for the current year, Citigroup Inc. said on Sept. 1.
Gilts lost investors 0.2 percent this month, compared with a 0.2 percent return for German bonds, according to Merrill Lynch & Co. indexes.
