The pound weakened against the dollar and euro while gilts rallied before Bank of England Governor Mervyn King presents economic estimates that may boost the case for keeping borrowing costs at record lows. Sterling declined against 11 of its 16 major peers tracked by Bloomberg, losing most against the South Korean won. King will make his first comments since the U.S. lost its AAA credit rating last week, following the Federal Reserve’s pledge late yesterday to keep interest rates near zero through mid-2013. “The inflation report will probably point to slower economic growth and inflation, which suggests investors will push their expectations for interest rate hikes even further out,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “That could take the shine off of sterling.” The pound, which has been lifted as U.S. and European market turmoil increased the relative appeal of British assets, fell 0.3 percent to $1.6266 as of 8:27 a.m. in London. Sterling declined 0.3 percent to 88.34 pence per euro and lost 0.4 percent to 125.03 yen. The yield on the 10-year gilt dropped seven basis points to 2.64 percent, five basis points from the record low of 2.59 percent reached Aug. 5. Two-year note yields declined three basis points to 0.57 percent. Signs of slowing economic growth in the U.K. come as the government implements the spending cuts since World War II, boosting speculation that the central bank will maintain monetary stimulus measures for longer to revive growth. Financial turmoil sparked by Standard & Poor’s lowering of the U.S.’s credit rating last week has also roiled markets, sending stock indexes plunging from Tokyo to London. 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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