The pound weakened after data showed economic growth in Germany and France exceeded estimates and a report said U.K. living standards will fall, spurring bets that euro-region interest rates will rise faster than in Britain. Sterling depreciated versus a majority of its 16 most traded peers. German gross domestic product jumped 1.5 percent in the first quarter compared with the previous three months, and French GDP rose 1 percent, exceeding economists’ median estimates of 0.9 percent and 0.6 percent, respectively. U.K. living standards will decline as inflation outstrips income growth and government spending cuts crimp welfare payments, the Institute for Fiscal Studies said separately. “The U.K. economy looks pretty lackluster compared to the likes of Germany and France, which supports the view that rates are going to rise faster in the euro-zone,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “That’s going to keep the pound among the laggards of the currency world.” The pound was 0.6 percent weaker at 87.94 pence per euro as of 11:07 a.m. in London. The British currency fell 0.2 percent against the dollar to $1.6264. Sterling bought 131.17 yen from 131.86 yen yesterday. The Bank of England left its main interest rate at a record low of 0.5 percent on May 5, three days after Governor Mervyn King said he favors keeping borrowing costs on hold. European Central Bank President Jean-Claude Trichet signaled on the same day that policy makers may raise borrowing costs after June, following a decision to keep their main rate at 1.25 percent. Spending Cuts Prime Minister David Cameron’s coalition government is trying to reduce a fiscal deficit running at almost 10 percent of gross domestic product in the year through March by raising taxes and implementing public spending cuts that the IFS says are the deepest since World War II. U.K. consumer earnings fell 3.8 percent in real terms in the 11 months through February after growing through the recession of the previous two years, the London-based IFS said in its report on living standards published today. The central bank said this week that inflation may reach 5 percent later this year, more than double its 2 percent target, even while risks to economic growth remain “skewed to the downside.” U.K. government bonds fell, pushing the yield on the 10- year gilt two basis points higher to 3.40 percent. The two-year yield also climbed two basis points, to 1.03 percent. Money markets expect a 25 basis-point increase in the central bank’s key rate by January, Tullett Prebon Plc sterling overnight interbank average forwards data show. 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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