The pound weakened for the first time in three days against the dollar after U.K. mortgage approvals declined more than economists forecast in June, adding to concern Britain’s recession is deepening. Sterling slid from near a five-week high against the greenback after the Bank of England said lenders granted 44,192 loans to buy homes, compared with a revised 50,544 in May. That’s the lowest since December 2010. The median forecast in a survey of analysts was for a 48,000 drop. The central bank will announce its next monetary-policy decision on Aug. 2. U.K. government bonds fell. “Data-wise, things are still looking weak as far as the U.K. is concerned and the medium-term picture is very bearish for sterling,� said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “Weak fundamentals suggest sterling will remain under pressure.� The pound fell 0.3 percent to $1.5701 at 12:28 p.m. London time after advancing to $1.5768 on July 27, the strongest level since June 20. The U.K. currency rose 0.2 percent to 78.12 pence per euro. A separate report by Hometrack Ltd. said house prices dropped for the first time this year and may extend their decline as the recession curbs demand for homes. A report on July 25 showed the U.K. economy shrank at a faster pace than analysts forecast in the second quarter. Gross domestic product contracted 0.7 percent from the previous three months, when it declined 0.3 percent, the Office for National Statistics said. Sterling Support Sterling has appreciated 4.4 percent in the past year, the third-best performer after the yen and dollar among 10 developed-market currencies tracked by Bloomberg Correlation- Weighted Indexes. The euro has weakened 7.2 percent. The pound will find so-called support at $1.5577, which is the 62 percent retracement of the rally from July 25 to July 27, according to Richard Adcock, a technical analyst at UBS AG in London. Support refers to an area on a price graph where analysts anticipate buy orders may be clustered. The 10-year gilt yield rose two basis points to 1.56 percent after dropping to a record 1.407 percent on July 23. The 4 percent bond maturing in March 2022 lost 0.245, or 2.45 pounds per 1,000-pound face amount, to 121.675. U.K. government bonds have returned 16 percent in the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 11 percent and Treasuries rose 9 percent. BOE Decision The Bank of England increased its asset-purchase target by 50 billion pounds to 375 billion pounds and kept its key interest rate at 0.5 percent at its meeting on July 4-5. The median forecast of 40 economists surveyed by Bloomberg is for asset purchases to be left unchanged at 375 billion pounds at this week’s gathering. Scotiabank Europe Plc changed its forecast this week to an increase, according to an e-mailed statement today. A measure of M4 money-supply growth the Bank of England uses to assess the effectiveness of its asset purchases rose 2.9 percent in the three months through June on an annualized basis, the central bank said. To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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