The pound reached its lowest level in a month against the dollar as data showed U.K. producer-price inflation slowed in February and investors trimmed bets that the Bank of England will raise interest rates. Britain’s currency weakened for a second day against the euro. Output prices increased 0.5 percent from January, when they rose 1.1 percent, the Office for National Statistics said today. The median forecast of 16 economists in a Bloomberg News survey was for a 0.6 percent increase. The central bank kept its borrowing costs at a record low of 0.5 percent yesterday as policy makers chose to set aside concern on rising inflation pressures to support the economic recovery. “The general outlook for U.K. rate hikes has come off,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Plc in London. “The pound has had a decent couple of weeks against the dollar, and we’re seeing it dip back down now.” The pound weakened 0.3 percent to $1.6020 as of 4:19 p.m. in London after reaching $1.5977, the weakest since Jan. 28. It was 1.5 percent lower in the week, the biggest decline since the five trading days ending Dec. 17. Sterling depreciated 0.5 percent to 86.24 pence per euro. Short-sterling futures advanced, pushing the implied yield on the contract expiring in December down 11 basis points to 1.45 percent, as investors cut bets on higher interest rates. The yield has risen from 1.25 percent at the end of last year. Rate Bets Investors are betting the London-based central bank will raise its benchmark rate 25 basis points to 0.75 percent at its August meeting, according to forward contracts on the sterling overnight interbank average, or Sonia. The data, compiled by Tullett Prebon Plc, yesterday signaled a 25 basis-point increase at the July meeting. The central bank hasn’t adjusted interest rates since March 2009. “There’s some disappointment regarding rate-hike expectations,” said You-Na Park, a currency strategist at Commerzbank AG in Frankfurt. “The pound has come under pressure after the Bank of England kept rates unchanged yesterday.” Bank of England Governor Mervyn King is due to give a speech on the stability of the international monetary and financial system at the Stanford Institute for Economic Policy Research in San Francisco later today. Home Prices Britain’s currency declined even as a report showed the average price of a home in England and Wales rose 0.3 percent in February to 222,456 pounds from a month earlier. Values fell 0.5 percent from a year earlier, the first annual decline since October 2009, research company Acadametrics Ltd. and LSL Property Services Plc said. U.K. stocks fell to a three-month low after an 8.9- magnitude earthquake and tsunami struck northern Japan. The benchmark FTSE 100 Index (UKX) retreated as much as 0.8 percent to the lowest level since Dec. 10. U.K. government bonds rose, pushing the yield on the 10- year gilt down six basis points to 3.54 percent. The 4.75 percent security due March 2020 rose 0.47, or 4.7 pounds per 1,000-pound face amount, to 109.26. Two-year note yields were seven basis points lower at 1.28 percent. The nation’s debt management office sold 4.5 billion pounds of 28-, 91- and 182-day bills. To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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