The pound weakened against the euro and gilts fell before U.K. Chancellor of the Exchequer George Osborne addresses parliament on the economy amid rising market turmoil and the worst British riots in 30 years. Sterling depreciated versus the majority of its 16 major peers, falling most against Mexico’s peso. Osborne is expected to defend the steepest government spending cuts since World War II as Europe’s debt crisis deepens. Opposition politicians may seek to take advantage of a Bank of England warning yesterday that the outlook is worsening as they call for a roll back of austerity measures. The finance minister is to speak at about 1 p.m. at a special sitting of lawmakers called after riots, looting and arson in London and other cities. “The big risk to the pound is political,” Mark Schofield, head of interest-rate strategy at Citigroup Inc. in London, said by telephone yesterday. “There are a lot of tensions in the government.” The pound weakened 0.3 percent to 88.16 pence per euro at 9:03 a.m. in London and appreciated 0.2 percent to $1.6163. Gilts fell, raising yields on 10-year government bonds by four basis points to 2.52 percent. Yields on two-year notes also increased four basis points, to 0.58 percent. The central bank lowered its outlook for the economy yesterday and Governor Mervyn King said headwinds are intensifying “by the day.” The benchmark FTSE 100 index (UKX) fell 3.1 percent to its lowest level in more than a year yesterday as concern Europe will fail to contain its sovereign debt crisis sparked a global market sell-off. The measure rebounded 1.7 percent today. 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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