By Matthew Brown Dec. 11 (Bloomberg) -- The British pound dropped to a record against the euro for a fourth consecutive day after a U.K. index of manufacturers’ output expectations matched the lowest level in 30 years, strengthening the case for interest-rate cuts. The currency also fell versus the South Korean won and the New Zealand dollar after the Confederation of British Industry’s gauge of expectations for the next three months held at minus 42, the same as November and the weakest since September 1980. The pound depreciated 17 percent against the euro this year as the economy slipped into its first recession in 17 years. “The U.K. output data is a confirmation that the base rate is on a downward trajectory,” said Neil Jones, head of European hedge fund sales at Mizuho Capital Markets in London. “As long as the U.K. continues to move towards a zero interest-rate policy then the pound will underperform.” The pound weakened as much as 1.2 percent to 89.09 pence, and was at 88.62 pence by 4 p.m. in London, from 88.08 pence yesterday. Against the dollar, the British currency climbed to $1.4945, from $1.4945. The Bank of England reduced its benchmark interest rate to 2 percent from 5.5 percent this year as it sought to fend off the fallout from the global financial turmoil. The European Central Bank cut its main rate to 2.5 percent on Dec. 4. For the pound to check its decline against the euro “we’ll need to see some evidence the data’s improving and the central bank can maybe at least slow the pace of easing if not stop,” Adrian Schmidt, a senior foreign-exchange strategist at Royal Bank of Scotland Plc in London, said in a Bloomberg TV interview. Lower Expectations British consumers’ predictions for inflation in the next year dropped the most since at least 1999 in November as the economic slump deepened, a survey for the Bank of England showed today, giving policy makers more reason to lower borrowing costs. The pound may weaken to 91.5 pence per euro this year, the equivalent of an all-time low for the pound versus the German mark, Mizuho’s Jones said. “If the ECB continues to be stingy with rate cuts then we could see parity in the first quarter of 2009, but we’re not betting on it,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Sentiment has gone so far against the pound that anything is possible.” U.K. two-year government notes advanced, pushing the yield down five basis points to 1.78 percent. The 4.75 percent security due June 2010 gained 0.07, or 70 pence per 1000-pound ($1,490) face amount, to 104.33. The yield on the 10-year security was at 3.619 percent. Yields move inversely to bond prices. The U.K. Debt Management Office sold 3.5 billion pounds of 4.5 percent gilts due 2013. Demand was 1.96 times the amount of securities offered, compared with 2.10 times at an auction on Oct. 16. To contact the reporter on this story: Matthew Brown in London on mbrown42@bloomberg.net

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