The pound gained and gilts fell after a report showed Britain’s economy rebounded in the first quarter on the strongest surge in service-industry growth for four years. Sterling snapped three days of declines versus the dollar and euro. Gross domestic product expanded 0.5 percent after contracting by the same amount in the fourth quarter, the Office for National Statistics said today in London, matching the median estimate of 28 economists surveyed by Bloomberg News. Services expanded by 0.9 percent, the most since 2006. “The reaction that we’re seeing in the pound right now is some kind of relief, because some thought the number would be even weaker,” said John Hydeskov, chief analyst at Danske Bank A/S in London. The pound advanced 0.5 percent to $1.6563 as of 10:07 a.m., extending its 3.4 percent monthly gain. Sterling rose 0.2 percent to 88.64 pence per euro, after earlier depreciating to 89.23 pence, the weakest level since April 13. Short-sterling futures dropped as traders increased bets the U.K. central bank will boost borrowing costs. The implied yield on the contract expiring in December jumped by six basis points to 1.22 percent, paring its monthly decline. U.K. government bonds fell, pushing the 10-year yield up five basis points to 3.53 percent. The 3.75 percent security due September 2020 slipped 0.385, or 3.85 pounds per 1,000-pound ($1,657) face amount, to 101.715. The two-year note yield rose six basis points to 1.15 percent. Gilts have earned investors 1.5 percent since the end of March, compared with a 0.6 percent return on German bonds and 1.1 percent on 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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