Aug. 20 (Bloomberg) -- The pound fell versus the dollar and yen and two-year U.K. government bond yields reached a record low as concern that the global economic recovery is slowing boosted demand for the safest assets. Sterling also slipped against the Swiss franc as the MSCI World Index of shares dropped 0.6 percent. While reports yesterday showed U.K. sales growth accelerated, U.S. data showed the number of people claiming unemployment benefits rose and a manufacturing gauge declined. Minutes of this month’s Bank of England’s meeting published Aug. 18 showed the Monetary Policy Committee considered further stimulus measures. “In a risk-aversion environment, the risk for the pound is in the downside,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “Even though data out of the U.K. is not that bad, you can’t say the same about the U.S. People are talking about a risk of a double-dip recession. That’s not going to bode well for sterling.” The British currency declined 0.5 percent to $1.5527 and dropped 0.3 percent against the Swiss franc at 1.6058 franc as of 1:05 p.m. in London. It slipped 0.5 percent to 132.57 yen. The pound rose 0.4 percent against the euro to 81.90 pence. Two-year note yields fell to 0.611 percent, the lowest since Bloomberg began compiling the data in 1992. Ten-year gilt yields declined two basis points to 2.98 percent. Weber’s Comments Bonds extended gains and the euro fell against the pound after European Central Bank council member Axel Weber said the ECB should help banks through end-of-year liquidity tension before deciding in the first quarter when to withdraw emergency lending measures. “Most of these discussions about the continuation of the exit I think will be focused on the first quarter,” Weber, who heads Germany’s Bundesbank, said in an interview with Bloomberg Television in Frankfurt yesterday. “It’s clear that we need to re-embark on a normalization procedure.” His comments suggested the ECB will support the region’s banks for longer than some investors expected. “Weber is considered a hawk at the ECB, and therefore comments like this have a strong impact on the market,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The market took it to mean they are backtracking a bit on the exit strategy, and that they are watching global risks very carefully.” ‘Hit by Austerity’ The rally in U.K. gilts may pause after the increase in retail-sales growth, Lloyds Banking Group Plc said. The 10-year yield slid below 3 percent for the first time since March 2009 yesterday. “Strong July retail sales have just added to the uncertainty of whether and how soon the U.K. economy will be hit by austerity,” Kenneth Broux, a senior market economist at Lloyds in London, wrote today in an investor note. “The psychological impact of reaching 3 percent in 10s could be enough for some investors to cash in.” Eventually, yields may reach 2.93 percent, Broux said. “If the rate of U.S. deterioration is sustained into Sept. 3 non- farm payrolls then the market will simply not look back,” he wrote. U.K. 10-year government bonds are heading for their best weekly gain since June as concern over the global growth outlook spurred demand for bonds with top credit ratings. Gilts handed investors 8.6 percent compared with a 8.9 percent gain from German debt and 8.4 percent from Treasuries, according to indexes compiled by European Federation of Financial Analysts Societies. --Editors: Keith Campbell, Peter Branton. To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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