By Matthew Brown Dec. 3 (Bloomberg) -- The pound fell after reports showed U.K. services shrank at the fastest pace in at least 12 years and consumer confidence dropped, giving the Bank of England more reason to cut interest rates tomorrow. The British currency declined all 16 of the most-traded currencies tracked by Bloomberg, losing as much as 1.7 percent against the dollar and 1 percent versus the euro. An index based on a survey of about 700 service companies fell to 40.1, the lowest since the gauge began in 1996, Markit and the Chartered Institute of Purchasing and Supply said today. Nationwide Building Society said consumer confidence fell to the lowest since at least 2004. The reports “weren’t taken too well by the markets,” said Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Calyon, the investment-banking unit of France’s Credit Agricole SA. “There are big expectations the central bank’s going to remain pretty aggressive. The market will be disappointed if it’s anything less than 100 basis points.” The British currency dropped to $1.4739 as of 12:14 p.m. in London, from $1.4920 yesterday. It traded at 85.78 pence per euro from 85.23 pence. The pound declined 26 percent against the dollar this year, the most since at least 1972, as the Bank of England lowered its key rate four times to fend off the worst of the fallout from the global credit crisis. The economy shrank 0.5 percent in the third quarter, after showing zero growth in the second. Buiter Comments Former U.K. policy maker Willem Buiter said yesterday the central bank may reduce the benchmark rate to zero early next year. The Bank of England will cut the rate by 1 percentage point to 2 percent tomorrow, according to the median forecast of 60 analysts surveyed by Bloomberg. Buiter’s views “appear to have stimulated the imagination of the market,” Greg Gibbs, director of foreign-exchange strategy at ABN Amro Holding NV in Sydney, wrote in a note to clients today. Interest-rate futures slid as traders increased wagers on cuts in borrowing costs. The yield on the contract expiring in March slid four basis points to 2.23 percent. U.K. government bonds were little changed, keeping yields close to record lows. The yield on the 10-year bond rose two basis points to 3.50 percent, near to the least since 1989, when Bloomberg began collating data. The two-year gilt yield also advanced two basis points, to 1.76 percent. Yields move inversely to bond prices. Falling Yields The yield on the two-year note, which is more sensitive to interest-rate movements, fell 276 basis points, or 2.76 percentage points, since the collapse of Lehman Brothers Holdings Inc. on Sept. 15. That compares with a 224 basis-point decline in the yield on the two-year U.S. Treasury note. Federal Reserve Chairman Ben S. Bernanke said Dec. 1 the central bank may buy Treasury securities to revive the economy because his room to lower the main U.S. rate from the current 1 percent is “obviously limited.” “Bernanke’s comments the other day kicked off the rally and that’s bringing gilts with it,” Elisabeth Afseth, a fixed- income analyst with broker Evolution Securities Ltd., said in a telephone interview. “We have the central bank announcement tomorrow, so that should keep it going. There’s no reason that yields can’t go a bit lower still.” To contact the reporters on this story: Matthew Brown in London on mbrown42@bloomberg.net

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