By Agnes Lovasz Nov. 5 (Bloomberg) -- The pound climbed against the euro and the dollar on speculation the Bank of England may accelerate the pace of interest-rate cuts, helping the British economy emerge from a recession sooner. The U.K. currency snapped a three-day drop versus the euro and rose for a second day against the dollar. The market expects policy makers to lower their key rate by 75 basis points tomorrow, according to a Credit Suisse Group AG index of probability based on overnight indexed swap rates. Fifteen of 60 economists in a Bloomberg survey say the Bank of England will reduce rates by that amount or more, with the rest predicting a 50 basis-point cut. ``Expectations of a larger cut tomorrow seem to be growing,'' said Adam Cole, head of global-currency strategy at RBC Capital Markets in London. ``That's sterling positive. Markets are currently in a mood to reward proactive policies to support economies.'' Against the euro, the pound climbed to 80.95 pence as of 3:30 p.m. in London, from 81.35 pence yesterday. The U.K. currency rose to $1.6183, from $1.5956, erasing a decline to as low as $1.5753. The pound may increase to 78.50 pence per euro in coming days, Cole said. Britain's economy is shrinking amid the fallout from the global financial crisis, which has made banks reluctant to lend to one another, limiting access to credit for consumers and companies. The economy will contract 1 percent next year, the European Commission predicted earlier this week. Economic Reports The pound fell against the dollar earlier today after reports showed U.K. services shrank in October and factory production had its longest streak of declines for almost three decades. The Chartered Institute of Purchasing and Supply's services index fell more than expected, to 42.4 last month, after a reading of 46 in September, Markit said today. The measure has stayed below 50, which signals contraction, since May. Production slid 0.8 percent from August, the biggest drop in 19 months. Economists predicted a 0.3 percent decline, according to a Bloomberg survey. Traders increased bets that U.K. rates will be lowered, with the implied yield on the December short-sterling futures contract slipping 6 basis points to 4.12 percent. It was 4.55 percent a week ago. ``The discussion is not about whether there's going to be a rate cut, but whether it's going to be 50, 75 or 100'' basis points, said Audrey Childe-Freeman, a senior currency analyst at Brown Brothers Harriman & Co. in London. ``The market may be ready to reward the central-banking community for being proactive.'' Bonds Climb Government bonds rose, with the yield on the two-year gilt down 7 basis points to 2.74 percent. The 4.75 percent security due June 2010 rose 0.11, or 1.1 pounds per 1,000-pound ($1,614) face amount, to 103.09. The 10-year yield dropped 4 basis points to 4.43 percent. Bond yields move inversely to prices. The difference in yield, or spread, between the two securities rose to 169 basis points today, the widest since September 1996, indicating investors favored short-dated securities, which tend to be more sensitive to interest-rate expectations. The U.K. government sold 250 million pounds of inflation- linked bonds due in 2055 at an auction today. Investors placed bids for 2.1 times the amount of securities offered. To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

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