The U.K. pound slid to the weakest level in almost six months against the euro and gilts jumped as data showed inflation unexpectedly slowed, damping speculation the Bank of England will have to raise interest rates. Sterling fell to its lowest level in a week against the dollar. Consumer prices rose 4 percent from a year earlier after a 4.4 percent increase in February, the Office for National Statistics said in London. Economists surveyed by Bloomberg predicted the rate would remain unchanged. The yield on the two- year note tumbled 11 basis points, while short-sterling futures advanced as traders scaled back bets for higher borrowing costs. “The trajectory for the pound is lower, certainly versus the euro, and potentially against the dollar,” said Kathleen Brooks, London-based research director at Forex.com, part of online currency trader Gain Capital Holdings Inc. “The Bank of England won’t hike interest rates until either late third quarter or early fourth quarter.” The pound depreciated 0.7 percent to 88.97 pence against the euro as of 10:54 a.m. in London, and dropped as much as 0.8 percent, the weakest level since Oct. 25. The U.K. currency declined 0.6 percent to $1.6253, after falling to $1.6227, the least since April 5. The Bank of England kept the main rate at an all-time low of 0.5 percent on April 7, while the European Central Bank raised its main refinancing rate to 1.25 percent from 1 percent on the same day amid concern about inflation. U.K., German Spread Gains by the two-year gilt left the yield as much as 12 basis points lower, the biggest drop since Jan. 25. Ten-year yields fell six basis points to 3.75 percent. The difference in yield between German two-year notes and similar maturity gilts increased eight basis points to 60 basis points, the most since January 2009. The U.K. securities yielded more than their German counterparts as recently as February. Gilts have lost investors 0.8 percent this month, pushing their decline in 2011 to 1.6 percent, according to indexes compiled by Bank of America Merrill Lynch. German bunds returned negative 0.8 percent this month and minus 3 percent this year, while U.S. Treasuries have returned minus 0.4 percent in April, down 0.6 percent since Dec 31. The implied yield on the September short-sterling futures contract dropped 11 basis points to 1.06 percent as traders reduced bets the Bank of England will lift rates. Sterling has strengthened 0.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which measure 10 developed-market currencies. It trails behind the euro’s 4.3 percent gain on speculation that the ECB would raise rates faster than the Bank of England. Data from the British Retail Consortium showed retail sales plunged by a record in March as accelerating inflation squeezed household spending. Sales at stores measured by value fell 1.9 percent from a year earlier, partly due to the timing of Easter in 2010, the London-based BRC said in a report today. That’s the biggest drop since the series began in 1995 and compares with a 1.1 percent gain in February. To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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