The pound rose, surpassing $1.64 for the first time in seven months, and gilts declined as reports on manufacturing and house prices added to evidence Europe’s second-biggest economy is recovering from a recession. The British currency also advanced versus the euro and the yen as the FTSE 100 Index surged to a five-month high. An index of U.K. manufacturing climbed to its strongest level in a year last month and house prices snapped 20 months of declines, data showed today. The pound will reach $1.72 in the next three months, Calyon said, following its biggest monthly gain in almost a quarter of a century. “The pound advanced on further risk appetite and improvement in the conditions of the manufacturing sector,” Sagiv Perez, chief analyst at Finotec Trading U.K. Ltd., a London-based derivatives and foreign-exchange broker, wrote in a note to clients today. The pound climbed as high as $1.6431, the strongest level since Oct. 31, and was at $1.6375 as of 1:11 p.m. in London, from $1.6189 at the end of last week. The British currency strengthened to 86.80 pence per euro, from 87.47 pence. A gauge based on a survey of U.K. factories rose to 45.4 in May from 43.1, the Chartered Institute of Purchasing and Supply and Markit Economics said today. The median of 25 forecasts in a Bloomberg News survey was for a reading of 44. Average house prices in England and Wales were little changed after falling 0.3 percent in April, property researcher Hometrack Ltd. said. ‘Take a Breather’ The reports reinforced speculation that record-low interest rates and stimulus measures are reviving the economy after it contracted 1.9 percent in the first quarter, the most since 1979. The Bank of England may decide this week to leave the key rate at 0.5 percent and continue a 125 billion-pound ($204 billion) bond-purchase plan to nurture a recovery. The pound tumbled to a 23-year low of $1.35 in January, a month when house prices slid 12 percent, according to an index from Rightmove Plc, owner of the U.K.’s largest residential property Web site. The U.K. currency may “take a breather” as it approaches $1.65 before resuming its advance against a “defensive” dollar, Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA, wrote in a research note today. Gilts slid, tracking European bonds and U.S. Treasuries lower, as the FTSE 100 Index climbed 1.8 percent to the highest level since January, sapping demand for the relative safety of government debt. Gilts Lose Allure The decline drove the yield on the 10-year note two basis points higher to 3.77 percent. The 4.5 percent bond due March 2019 fell 0.17, or 1.7 pounds per 1,000-pound ($1,637) face amount, to 105.96. U.K. debt is losing its allure for the biggest owners of gilts, according to a Bloomberg survey. Eight of 10 funds, which oversee a combined $2.9 trillion, said they are either more likely to sell than buy British government bonds in the next three months or have no plans to purchase them, the survey conducted last week showed. Two said they were more inclined to buy than sell the securities. The Treasury plans to auction a record 220 billion pounds of gilts this fiscal year, 50 percent more than last year, to help drag the economy out of the recession. The U.K. is scheduled to sell 2 billion pounds of 30-year bonds tomorrow and 3.5 billion pounds of 10-year securities the next day.

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