By Lukanyo Mnyanda Nov. 11 (Bloomberg) -- The pound fell to a record low against the euro after U.K. home sales slumped, adding to evidence the economy is mired in a recession. The pound also slipped versus the dollar after the Royal Institution of Chartered Surveyors said real-estate agents and surveyors sold the least homes in the quarter through October since at least 1978. Taylor Wimpey Plc said today U.K. orders fell 40 percent from a year ago, citing an ``extremely challenging'' market. A separate report from the British Retail Consortium showed retail sales dropped 2.2 percent in October. ``We've had a lot of bad news in the economy and in the very short term, the pound will weaken some more,'' said Adarsh Sinha, a currency strategist at Barclays Capital in London. ``Part of that will be related to risky assets doing badly.'' The pound dropped 0.6 percent to 82.15 pence per euro, the lowest level since the single European currency's debut in 1999, and was at 82.13 at 11:57 a.m. in London, from 81.67 pence yesterday. It was at $1.5530 from $1.5604. The U.K. currency declined 21 percent against the dollar and 10 percent versus the euro this year as Europe's second- largest economy headed toward a recession. The economy shrank 0.5 percent in the third quarter after registering zero growth in the previous months, government data showed last month. The pound will likely rebound to trade at $1.70 in six months and 77 pence to the euro in a year, Sinha said. It may trade at $1.66 and 78 pence at the end of 2009, according to the median of analyst forecasts compiled by Bloomberg. Rate Bets Traders raised bets the Bank of England will add to interest-rate cuts, with the implied yield on the short-sterling December futures contract falling 7 basis points to 3.46 percent. Policy makers trimmed the benchmark rate last week by 1.5 percentage points to the lowest level since 1955. The 3 percent main rate compares with 3.25 percent in the euro region and 1 percent in the U.S. The pound's trade-weighted index dropped a seventh day to 81.17 today, the lowest level since Oct. 27, according to indexes compiled by Deutsche Bank AG, the world's biggest currency trader. The index fell to 80.43 on Oct. 24, the lowest level since at least January 2000. The benchmark FTSE 100 Index of stocks retreated as much as 2.8 percent, bringing this year's decline to 33 percent and putting it on course for its worst year on record. The MSCI World Index dropped 1.4 percent. `Sell the Pound' ``A combination of expected aggressive further rate cuts, weak fundamentals and risk aversion ahead is driving the pound lower,'' Neil Jones, head of European hedge-fund sales in London at Mizuho Capital Markets, wrote in an e-mail yesterday. ``The sell-the-pound trade isn't over yet.'' U.K. government bonds dropped, with the yield on the two- year gilt rising 6 basis points to 2.61 percent. The 4.75 percent security due June 2010 fell 0.09, or 90 pence per 1,000 pound face amount, to 103.26. The 10-year yield rose 5 basis points to 4.25 percent. Bond yields move inversely to prices. The Debt Management Office sold 3.5 billion pounds of 2015 notes today to yield an average 3.99 percent. Investors bid for 1.53 times the amount offered, down from 2.18 times at a sale of the same securities on Sept. 16, 2004. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

Source