The pound weakened against most of its major peers as the U.K.’s worsening economic outlook and prospects for more central bank asset-purchases weighed on the U.K. currency. Sterling slid against the dollar and the euro after the Bank of England restarted asset purchases this week amid threats to the economy and the financial system from the debt turmoil in Europe, Britain’s biggest trading partner. Charlie Bean, deputy governor of the U.K. central bank, said the monetary policy committee “could well decide” to expand quantitative easing again, the Guardian reported, citing an interview. U.K. 10-year gilts rose for the first time in seven days. “Investors are increasingly turning bearish on sterling’s negative fundamentals,” said Valentin Marinov, a foreign- exchange strategist at Citigroup Global Markets Ltd. in London. “With further QE in the pipeline, this could be the beginning of a weakening trend in the pound.” The pound fell 0.4 percent to $1.5692 at 10:43 a.m. in London, after reaching $1.5798 yesterday, the strongest intraday level since Sept. 16. Sterling was little changed at 87.46 pence per euro and weakened 1 percent to 120.54 yen. The declines came even after a report today showed the U.K. trade deficit on goods narrowed in August as exports rose to a record and imports fell. Britain’s economic outlook is worsening as the government implements its deepest public spending cuts since World War II to reduce the nation’s fiscal deficit amid investor concern about the ability of governments around the world to repay debt. Rising Unemployment U.K. unemployment rose to a 15-year high of 8.1 percent in the three months through August, from 7.9 percent in the quarter ended July, the Office for National Statistics said yesterday. Economic growth also slowed to 0.1 percent in the second quarter from the previous three month, the statistics office said last week, lower than the 0.2 percent previously published. The worsening growth outlook prompted the central bank to announce an increase in the size of its bond purchases last week, expanding the program to 275 billion pounds from 200 billion pounds, the biggest increase since the first round of so-called quantitative easing in March 2009. Gilts rose, reducing 10-year yields by five basis points, or 0.05 percentage point, to 2.60 percent. Two-year note yields were three basis points lower at 0.60 percent. U.K. government bonds have returned more than 10 percent to investors this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, as concern about the euro-area sovereign debt crisis drove investors to the comparative safety of gilts. 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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