The pound slumped against the dollar and the euro and two-year British government notes rose after data showed U.K. retail sales in February dropped more than economists estimated. Sterling weakened the most in a month against a basket of nine developed-nation currencies. Sales fell 0.8 percent from January, when they jumped a revised 1.5 percent, the Office for National Statistics said today. The median estimate from economists in a Bloomberg survey was for a 0.6 percent decline. Minutes of the Bank of England’s March meeting published yesterday showed policy makers voted 6-3 to keep rates on hold, even as they forecast inflation may accelerate. “The data suggests to us that the retail sector is cooling off at a fast pace, which obviously must be worrying for policy makers,” said John Hydeskov, chief analyst at Danske Bank A/S in London. “The pound will continue to lose against the euro, especially if the European Central Bank hikes rates in early April. An imminent U.K. hike can turn out to be very far away.” Sterling slid 0.3 percent to $1.6183 and was 0.7 percent weaker at 87.38 pence per euro as of 11:49 a.m. in London. It depreciated as much as 0.8 percent against nine major peers gauged by Bloomberg Correlation-Weighted Currency Indexes, its steepest decline since Feb. 24. The yield on the two-year gilt fell two basis points to 1.26 percent. The 4.5 percent bond due March 2013 fell 0.03, or 0.3 pounds per 1,000-pound ($1,617) face amount, to 106.220. The benchmark 10-year yield was two basis points higher at 3.57 percent. Short-Sterling Futures Short-sterling futures rose, sending the yield on the contract expiring in December down two basis points to 1.42 percent, as traders pared bets on an increase in U.K. rates. Chancellor of the Exchequer George Osborne raised next year’s borrowing target in yesterday’s budget speech and said the Office for Budget Responsibility now sees economic growth in 2011 of 1.7 percent, down from November’s 2.1 percent forecast. Bank of England Chief Economist Spencer Dale, who voted this month to raise the key interest rate, today said he would reconsider his stance if the economic recovery stumbles. “If growth turns out to be materially weaker than I anticipate or other medium-term pressures on inflation ease unexpectedly, I will reverse my decision,” he said in a speech in London. Sterling has gained 1.2 percent this year, according to Bloomberg Correlation-Weighted Currency Indexes, which track 10 developed-market currencies. It trails the euro’s 3.3 percent advance, the Swedish krona and Norwegian krone. “If the U.K. strategy risks a double-dip recession and low policy rates for longer, sterling is likely to fall, not rise,” Steven Barrow, London-based head of research for Group-of-10 currencies at Standard Bank Plc, wrote in an e-mailed note today. “In the short term we feel that the pound won’t be able to break too far away from 1.60.” U.K. government debt has handed investors a 0.2 percent loss this year, compared with a 1.7 percent drop for German bonds and 0.4 percent return for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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