By Agnes Lovasz Oct. 27 (Bloomberg) -- The pound traded near the weakest in five years against the dollar and close to an all-time low versus the euro after a report on house prices added to evidence Britain's economy is sliding into a recession. The currency declined for a seventh day against the dollar after Hometrack Ltd. said house prices dropped this month by the most since at least 2001 and U.K. stocks declined for a second day. The Sunday Times said yesterday Chancellor of the Exchequer Alistair Darling will say in a speech this week the economic crisis will be deeper and longer-lasting than first predicted. ``Whenever recession fears become the main issue, the pound depreciates,'' said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``The pound is in a very uncomfortable position.'' The pound fell against 14 of its 16 most-traded counterparts, dropping 1.7 percent to $1.5620 as of 6:21 p.m. in London, from $1.5897 last week, when it had its biggest intraday decline in at least 37 years. Against the euro, the currency slipped to 80.33 pence, from 79.31. It fell to an all-time low of 81.96 pence per euro on Oct. 24. The currency may fall below $1.50 in coming weeks and will move in a range of 79 pence to 81.50 pence per euro during the same period, Karpowitz forecast. Growth Concern The U.K. currency has declined 12 percent versus its U.S. counterpart this month and 22 percent since June as tumbling house prices and bank rescues sparked concern economic growth was faltering. The pound's drop accelerated at the end of last week after a government report showed the economy contracted more than twice as much as economists predicted. In the second quarter, there was no growth. 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 said today. That's the biggest annual drop since the index started in 2001. Prices fell 1.3 percent from September. ``The expectation of a forthcoming recession and rising unemployment will further undermine demand for housing,'' Richard Donnell, director of research at Hometrack in London, 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 revenue, 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 headed 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. Short Positions ``The market continues to sell the pound 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 also weakened on speculation the Bank of England, led by Governor Mervyn King, will lower interest rates at its next scheduled decision on Nov. 6. The implied yield on the December sterling interest-rate futures contract fell 6 basis points to 4.58 percent. Rate Cuts Policy makers this month lowered interest rates by a half point to 4.5 percent in joint action with central banks around the globe to stem the financial crisis. The central bank may need to consider lowering its benchmark interest rate by a full percentage point next week, former Financial Services Authority Chairman Howard Davies said on BBC Radio 4 today. A reduction of that size would be the largest drop since the U.K. central bank won the power to set interest rates independently in 1997. Prime Minister Gordon Brown said that central banks around the world have scope to lower interest rates, in an interview with the BBC. A collapse in credit markets and the worst housing slump in a generation have rocked 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. U.K. government notes declined with the yield on the 10-year gilt rising 2 basis points to 4.39 percent. The 5 percent security due March 2018 fell 0.16, or 1.6 pounds per 1,000-pound ($1,565) face amount, to 104.73. The yield on the two-year note climbed 3 basis points, to 3.12 percent. Bond yields move inversely to prices. To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

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