The pound snapped a three-day gain versus the dollar after reports showed U.K. house prices fell for an eighth month and growth in services declined more than estimated, reducing the prospect for an interest rate rise. Sterling declined against all 16 of its most-traded peers. The average cost of a U.K. home fell 0.2 percent in February from the previous month, London-based property researcher Hometrack Ltd. said. An index of British service industry activity fell to 52.6 in February, according to Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply, lower than the 53.7 forecast in a Bloomberg survey. “These sets of data suggest the Bank of England will adopt a wait-and-see approach so markets might need to revise down their rate hike expectations,” said Sarah Hewin, a senior economist at Standard Chartered Bank in London. “That will exert some negative pressure on the pound.” The British currency fell 0.3 percent to $1.6271 as of 11:13 a.m. in London, down from as high as $1.6344 yesterday, the strongest intraday level since Jan. 20, 2010. The pound weakened 0.4 percent to 85.23 pence per euro and 0.5 percent to 133.09 yen. Short-sterling futures rose, pushing the implied yield on the contract expiring in December down two basis points to 1.59 percent, signaling investors are trimming bets the Bank of England will raise interest rates. Sterling strengthened yesterday after an industry report showed U.K. construction grew at the fastest pace in eight months in February, adding to signs the economy may withstand a rise in the bank rate. The pound has gained 4.3 percent against the dollar this year amid mounting speculation that the central will raise interest rates from a record low 0.5 percent to quell above-target inflation. MPC Split Policy maker Andrew Sentance has led calls for the central bank to increase borrowing costs since June and last month voted for a 50 basis-point increase. Minutes from the bank’s Feb. 10 meeting showed Spencer Dale joined Sentance and Martin Weale in voting for higher borrowing costs. Dale and Weale favored a 25 basis point rise. The next rate decision is scheduled for March 10. Money markets signal policy makers will probably raise the key rate by 50 basis points by year-end, according to sterling overnight index average forwards, Tullett Prebon Plc data show. So-called Sonia rates, which indicated as recently as last week that the first 25 basis point increase will happen in May, now show investors have pushed back their expectations to July. ‘Self-Defeating’ Gesture “We remain of the view that monetary policy will remain unchanged in 2011 and that the first hike won’t be until next year,” said Hewin. “To raise rates fairly soon could potentially be very damaging to the economy.” Increasing the benchmark interest rate as a gesture in the fight against inflation would be “self-defeating,” Bank of England Governor Mervyn King told lawmakers in London this week. U.K. two-year note yields fell one basis point to 1.38 percent while 10-year yields increased three basis points to 3.66 percent. The European Central Bank will leave its main refinancing rate at a record low of 1 percent, according to all 53 economists in a Bloomberg survey. The decision is due at 1:45 p.m. local time in Frankfurt. To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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