The pound rose against the euro after a report showed the U.K. services industry contracted less than forecast in January and U.S. companies cut fewer jobs than estimated, sparking demand for riskier assets. The British currency also advanced versus the Swiss franc and the Norwegian krone even as the National Institute of Economic and Social Research, or Niesr, said the economy will stay mired in a recession until the fourth quarter. The Bank of England will reduce its benchmark interest rate tomorrow by 50 basis points to 1 percent, according to a Bloomberg survey of economists. “The pound started to strengthen after the data came out saying PMI services was above expectation, even before the U.S. unemployment numbers,” said David Powell, a foreign-exchange strategist in London at Bank of America Corp. The U.K. currency strengthened 1.5 percent to 88.89 pence per euro as of 2:54 p.m. in London. It rose 0.2 percent to $1.4486. The pound will climb to $1.49 by the end of the first quarter, before dropping to $1.39 by the end of June, Powell said. It will depreciate to 95 pence by the end of the first quarter and 98 pence at the end of June, he said. Gross domestic product will drop 2.7 percent this year, compared with an earlier forecast of a 0.9 percent contraction, Niesr, whose clients include the Treasury and the Bank of England, said in a report today. The global economy will expand 0.5 percent, the slowest pace in 60 years, the figures showed. ‘Finding the Floor’ The Chartered Institute of Purchasing and Supply index for the services industry was 42.5 in January, compared with 40.2 the month before. Analysts predicted a reading of 40.3, according to a median forecast in a Bloomberg survey. A reading below 50 indicates contraction. “The pound might be finding the floor,” said Geoffrey Yu, a currency strategist in London at UBS AG, the world’s second- biggest foreign-exchange trader. “A lot of bad news has been priced in. The pound is undervalued according to its long-term trend.” Gilts fell as the U.K. Debt Management Office sold 2 billion pounds ($2.9 billion) of 4.25 percent bonds maturing in 2049. The auction drew bids for 2.03 times the securities offered, compared with an average of 1.97 times in the previous three sales. The yield on the 10-year gilt increased five basis points to 3.79 percent. The 5 percent security due March 2018 dropped 0.36, or 3.6 pounds per 1,000-pound face amount, to 109.19. The two-year note yield also gained five basis points, to 1.69 percent. Bond yields move inversely to prices. “The market is weighed down by the idea we are going to get an endless amount of supply as no one seems to come up with the great solution to get any of these major economies going,” said Marc Ostwald, a fixed-income strategist at Monument Securities in London. “But from the aspect that it’s the cheapest bond in the ultra-long end of the curve, the bond went relatively well.”

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