The pound weakened the most in a month against the dollar and gilt yields dropped to records after the Bank of England said U.K. economic growth was likely to remain “subdued� in the near term. Sterling weakened versus 13 of its 16 major counterparts as central bank Governor Mervyn King said the U.K. faced threats from the euro region’s “storm� as he released the quarterly Inflation Report in London. The central bank this month halted its bond-purchase, or quantitative easing, program at 325 billion pounds ($519 billion). “The pound is lower given King’s concerns over the euro- zone fallout and the possible negative impact on the U.K. economy,� said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “There were certainly no signs of further QE being off the table.� The pound fell 0.4 percent to $1.5927 as of 11:45 a.m. London time after dropping as much as 0.7 percent, the biggest decline since April 13. It reached $1.5889, the lowest since April 17. Sterling slid 0.3 percent to 79.86 pence per euro. “Concerns about the possibility of a disorderly resolution� in the euro area have “adversely influenced asset prices, bank funding costs and confidence,� the Bank of England said in the report. “The MPC judges it likely that the possibility of such extreme outcomes crystallizing will continue to weigh on U.K. activity for some time, even if those outcomes do not actually occur.� Second Recession The U.K. economy fell into its second recession since 2009 in the first quarter, the Office for National Statistics said on April 25. The pound weakened 0.3 percent today, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The 10-year gilt yield fell five basis points, or 0.05 percentage point, to 1.85 percent after dropping to a record 1.821 percent. The 4 percent bond due in March 2022 gained 0.45, or 4.50 pounds per 1,000-pound face amount, to 119.215. The five-year yield dropped as much as seven basis points to a record 0.851 percent, while two-year yields slid to 0.342 percent, the lowest since Jan. 30. Gilts have returned 0.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries gained 1.1 percent, and German bunds rose 2.6 percent. To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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