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BLBG: Pound Slides Against Dollar, Euro as Recession Concern Deepens
 
By Agnes Lovasz

Oct. 27 (Bloomberg) -- The pound slid against the dollar and euro after an industry report showed U.K. house prices dropped by the most in at least seven years this month and will keep falling as the economy deteriorates.

The Sunday Times reported yesterday that Chancellor of the Exchequer Alistair Darling will say this week the economic crisis will be deeper and longer-lasting than first predicted. The pound had its biggest weekly loss last week since Black Wednesday in 1992 as the economy shrank more than forecast in the third quarter.

``The market continues to sell GBP across the board,'' Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a note to clients. ``We suggest using rallies in the pound against the dollar to the $1.60 handle as an opportunity to form short positions.'' A short position is a bet that an asset's price will fall.

The pound fell against all 16 of its most-traded counterparts. It fell 2.4 percent to $1.5351 as of 9:48 a.m. in London, its seventh consecutive drop, from $1.5897 at the end of last week, when its 5.9 percent intraday plunge was the most in at least 37 years. Against the euro, the currency slipped to 80.84 pence, from 79.31. It touched a record low 81.96 pence on Oct. 24.

The average cost of a residential property in England and Wales slipped 7.3 percent from a year earlier to 163,200 pounds ($254,000), London-based Hometrack Ltd. said in a statement today. That's the biggest annual drop since the index started in 2001. Prices fell 1.3 percent from September.

`Undermine Demand'

``The expectation of a forthcoming recession and rising unemployment will further undermine demand for housing,'' Richard Donnell, director of research at Hometrack, said in a statement. ``Continued price falls are inevitable.''

The government hasn't lost control of the public finances, although the crisis has hurt its revenues, Darling will say in a speech at the annual Mais lecture in London on Oct. 29, the Sunday Times reported, without saying how it got the information.

Prime Minister Gordon Brown and Bank of England Governor Mervyn King said for the first time last week that Britain is heading for a recession, while Charlie Bean, the central bank's governor for financial stability, said in an Oct. 24 interview with the Scarborough Evening News that the turmoil in the banking industry is the worst ever.

A collapse in credit markets and the worst housing slump in a generation have buffeted the British economy, Europe's second-biggest. The U.K. is already in a recession and the economy will contract for the next three quarters, Ernst & Young's ITEM Club, which uses the same forecasting model as the Treasury, said in a report on Oct. 20.

Economy Shrank

The economy shrank 0.5 percent in the third quarter, the Office for National Statistics in London said last week. The median forecast of 35 economists in a Bloomberg survey was for a contraction of 0.2 percent.

U.K. government notes rose. The gain pushed the yield on the 10-year gilt 2 basis points lower to 4.34 percent, near the lowest level in two weeks. The 5 percent security due March 2018 rose 0.16, or 1.6 pounds per 1,000-pound ($1,543) face amount, to 105.05.

The yield on the two-year note fell 2 basis points to 3.07 percent. Bond yields move inversely to prices.

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

Source