By Agnes Lovasz and Lukanyo Mnyanda Oct. 31 (Bloomberg) -- The pound fell versus the dollar, heading for the biggest monthly decline in 16 years, after a report showed U.K. consumer confidence slumped in October. The U.K. currency snapped a three-day gain against the dollar after an index of sentiment slid to minus 36, close to the weakest level since at least 1974, GfK NOP said today in a report. A gauge of consumer willingness to make major purchases dropped 11 points to minus 42, the lowest since the series began the same year, as a recession in Britain looms. ``The U.K. is in the epicenter of the crisis,'' said Lee Hardman, a currency strategist in London at Bank of Tokyo- Mitsubishi Ltd. ``The Bank of England are now in a position to aggressively ease monetary policy going forward. The removal of the interest-rate support will further undermine the pound from already depressed levels.'' The pound dropped to $1.6155 as of 10:36 a.m. in London, from $1.6451 yesterday. The U.K. currency, higher in the week, is down 9.3 percent since Sept. 30, the steepest monthly decline since 1992. Against the euro, the British currency fell to 78.80 pence, rising for a fourth day, and was poised for a second monthly gain. The pound will fall to $1.40 in the next six month and trade as low as 81-82 pence versus the euro, Harman predicts. House prices fell from a year earlier by the most since at least 1991 this month as banks tightened their grip on credit, Nationwide Building Society said yesterday. Policy makers will probably lower the benchmark interest rate by a half point to 4 percent next week, after they voted for an emergency cut on Oct. 8 to save the financial system from collapse, economists say. The yield difference between two-year and 10-year government notes widened to the most in 12 years as investors favored shorter-dated securities on expectations the Bank of England will lower interest rates as early as next week to support economic growth. The yield difference, or spread, increased 3 basis points, to 152 basis points today, to the most since September 1996. U.K. government bonds gained, snapping four days of declines, pushing the yield on the 10-year gilt down 1 basis points to 4.43 percent. The 5 percent security maturing in March 2018 rose 0.07, or 70 pence per 1,000-pound ($1,618) face mount, to 104.34. The yield on the two-year note dropped 3 basis point to 2.92 percent. Bond yields move inversely to prices. To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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