By Andrew MacAskill and Lukanyo Mnyanda Nov. 13 (Bloomberg) -- The pound dropped to a record low against the euro and breached $1.50 for a second day on mounting evidence Europe's second-biggest economy is snarled in a recession. The U.K. currency fell through $1.50 yesterday for the first time in more than six years. BT Group Plc, the U.K.'s largest phone company, said today it aims to cut about 6 percent of jobs in the year through March. The Bank of England yesterday indicated it will keep cutting interest rates as the economy slumps. ``Sterling weakness may persist for another two or three quarters,'' said Geoffrey Yu, a currency strategist in London at UBS AG, the world's second-biggest foreign-exchange trader. ``The pound will continue to drift lower as more cuts are needed. The BOE has fully endorsed this now.'' The pound dropped to $1.4920 as of 10:39 a.m. in London, from $1.4964 yesterday. Against the euro, it weakened to 83.66 pence, from 83.56 pence yesterday. Europe's largest economies are contracting amid a freeze on lending. Germany today confirmed it entered its worst recession in at least 12 years. A government report yesterday showed jobless claims rose to the highest level since March 2001. The British currency's trade-weighted index dropped today to the weakest since at least January 2000, according to indexes compiled by Deutsche Bank AG, the world's biggest currency trader. The index lost 2.2 percent to 78.96. `Remain a Burden' ``The present pound weakness reflects the current situation of the British economy quite well,'' analysts from Commerzbank AG, including Lutz Karpowitz, wrote in a client note today. ``We assume that the poor economic trend will remain a burden on the pound for the time being.'' The pound may decline to 85 pence per euro, according to Commerzbank. The pound fell 25 percent against the dollar and 12 percent versus the euro this year. It traded above $2 as recently as July 23. Bank of England policy maker Andrew Sentance said today the pound's slide against the dollar and the euro will make it easier for manufacturers to cope with a recession. The currency's drop will also ``help redress some of the imbalances that have grown up over the years,'' he said. U.K. Chancellor of the Exchequer Alistair Darling will forecast in his pre-Budget report this month the recession won't be over until 2010, the Independent cited him as saying in an interview. `Higher Return' ``The U.K. is looking at the steepest recession of the G-7 countries and the sharpest cut in interest rates,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``All these factors serve to undermine sterling. Investors are cautious about putting there money here when they can get a higher return elsewhere.'' The pound's 14-day relative-strength index versus the euro, a technical indicator some traders use to forecast changes in price direction, was at 28.3 today, below the 30 threshold that signals a rebound. The previous time the pound was below 30, on Sept. 3, the U.K. currency rose the next eight days. Gross domestic product will contract by an annual 1.8 percent in the first three months of the year, according to Bank of England forecasts published yesterday. ``We are certainly prepared to cut bank rate if that proves to be necessary,'' Governor Mervyn King said at a press conference later in London. Policy makers trimmed the benchmark rate last week by 1.5 percentage points to the lowest level since 1955. Yield Difference The difference in yield between two-and 10-year U.K. government bonds widened today to the most in 15 years as investors bought shorter-dated notes on expectations the Bank of England will cut interest rates. The spread between two- and 10-year gilts widened to 181 basis points today, the most since March 1993. The so-called steeper yield curve suggests investors have become more pessimistic about the outlook for economic growth. The yield on the two-year gilt, more sensitive to interest rates, dropped 2 basis points to 2.28 percent as of 10:26 a.m. in London. The 4.75 percent security due June 2010 rose 0.03, or 30 pence, per 1-000-pound ($1,491) to 103.78. The yield on the 10-year gilt was little changed at 4.10 percent. Yields move inversely to bond prices. The U.K. sold 4 billion pounds worth of 3.25 percent bonds maturing in 2011 today, drawing bids for 2.37 times the amount of securities offered. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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