By Anna Rascouet March 15 (Bloomberg) -- The pound dropped the most in two weeks against the dollar after a poll showed the U.K. may face a minority government after this year’s election and home prices rose in March by the smallest amount for the month on record. Sterling fell against all 16 of its most-traded peers. A YouGov Plc survey in yesterday’s Sunday Times showed the Labour Party four percentage points behind the Conservatives, indicating either party may need to rely on the smaller Liberal Democrats to form an administration. The average house price in England and Wales climbed 0.1 percent from February, Rightmove Plc said. Prices in London dropped 2.5 percent. “There is no let-up for sterling,” said Jane Foley, London-based research director at Forex.com, an online currency trader. “There is real fear over the budget deficit and whether it will be tackled with a hung parliament.” The pound slid 1.2 percent to $1.5022 as of 11 a.m. in London, and depreciated 0.8 percent to 91.25 pence per euro. Concern that Britain, which lagged behind the U.S. and euro region in exiting the recession, will struggle to narrow its deficit has made the pound the worst performer this year among the dollar’s 16 most-traded counterparts. Sterling tumbled to $1.4784 on March 1, the lowest in 10 months. Liberal Democrat leader Nick Clegg told the BBC two days ago he will only support spending cuts to tackle the U.K.’s record deficit once the economic recovery has been established. ‘Economic Masochism’ Cutting now would be “an act of economic masochism,” he said. Moody’s Investors Service said the U.K. and the U.S. have moved “substantially” closer to losing their AAA credit grade. The two countries will spend more on debt service as a percentage of revenue this year than any other top-rated nation, the ratings company said. Futures traders are more bearish than ever on sterling amid concern that the currency’s worst annual start in 13 years will continue as the U.K.’s budget deficit approaches the Greek shortfall that roiled the euro. Wagers on the pound weakening against the dollar outnumber futures that profit on a rise by eight times more than when George Soros made $1 billion betting against the currency in 1992, the year Prime Minister John Major’s Conservative government was forced to withdraw from the European Exchange Rate Mechanism. Sterling fell 19 percent that year. Gilts Advance Gilts rose, with the yield on the 10-year bond slipping 3 basis points to 4.06 percent, and the two-year note yield dropping 1 basis point to 1.21 percent. Conservative poll ratings have slumped this year as the economy exited recession and leader David Cameron’s warnings that Britain faced an age of fiscal austerity frightened some voters. Prime Minister Gordon Brown is seeking a fourth term for Labour by promising to delay spending cuts until 2011 to cement the recovery from the worst recession in six decades. The budget deficit is the highest among the Group of Seven nations, and the Conservatives say action is needed now. To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.net

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