U.K. government bonds headed for a fourth weekly gain, the longest streak since August, as data showed prices of goods leaving U.K. factories rose at a slower pace in April, adding to bets interest rates will stay low. Gilts erased their declines as U.K. stocks dropped, underpinning demand for the safest assets. The pound fell against higher-yielding currencies such as the Australian dollar and Norwegian krone. Producer prices rose 0.8 percent from March, when they gained 0.9 percent, U.K. statistics showed. A survey yesterday indicated that service industries are slowing. “Economic numbers out of the U.K. have been disappointing lately, and it’s unlikely the Bank of England will be able to raise interest rates anytime soon,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “I find short-dated gilts expensive at the current level, but it’s too early to go short or bet for a decline.” The yield on 10-year gilts fell one basis point to 3.38 percent as of 10:30 a.m. in London, and is down five basis points from last week. The 3.75 percent security due in September 2020 traded at 102.86. Two-year note yields stayed at 1.02 percent, or 19 basis points down from last week. Five-year breakeven rates, a gauge of market inflation expectations derived from yield difference between regular and index-linked bonds, declined 5 basis points to 2.70 percentage points, the lowest since March 17. The pound was little changed against the euro at 86.73 pence and is down 0.1 percent this week. It was unchanged versus the dollar at $1.6390. The currency rose 0.3 percent against the yen to 131.64. Rate Outlook Britain’s currency strengthened as much as 1.4 percent against the euro yesterday, the steepest intraday climb since Oct. 26, after the European Central Bank left its key rate unchanged at 1.25 percent and signaled it may not raise the main refinancing rate until after June. The move followed an earlier slide in the pound to a 13-month low against the euro. Sterling fell 1 percent to A$1.5336 from A$1.5489 yesterday. Any gains in sterling are likely to be short-lived, according to UniCredit SpA, Italy’s biggest lender. “Recent data out of the U.K. tend to have surprised on the downside,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “Those reports will only bolster speculation that the Bank of England will keep rates low for longer. That’s not going to help the pound.” The Bank of England yesterday kept its benchmark rate at a record low 0.5 percent as weak economic data suggested the economy isn’t yet strong enough to withstand a withdrawal of monetary stimulus. Reports this week have showed house prices declined for the first time in three months, while a gauge of construction growth unexpectedly dropped to a four-month low. An April 12 report showed U.K. inflation unexpectedly slowed to 4 percent in March, following five months of acceleration to 4.4 percent in February, the highest in more than two years. 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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