The pound rose against the dollar as U.K. stocks advanced and before a monthly report on U.S. jobs. Gilts fell, paring a weekly gain. Sterling depreciated for the third day this week versus the euro after data showed services growth in Britain unexpectedly slowed in July as the nation remains gripped by a double-dip recession. The economy will shrink by 0.5 percent this year, forcing Chancellor of the Exchequer George Osborne to miss his budget-deficit target, the National Institute of Economic and Social Research said in a report. “Sterling-dollar is being dragged up by a negative tone for the dollar across most markets before U.S. payrolls,� said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London. “There’s a reassessment of how negative the news was from the ECB yesterday.� Sterling rose 0.3 percent to $1.5564 at 1:01 p.m. in London, leaving it 1.2 percent lower in the week, the first weekly drop in four. The pound depreciated 0.3 percent to 78.75 pence per euro, set for a 0.7 percent decline in the five days. The U.K. currency has dropped 1.7 percent against a basket of nine developed market peers in the past three months as the nation’s economy worsened, according to Bloomberg Correlation- Weighted Indexes. The dollar rose 2.6 percent in the period. The deterioration has been “even more pronounced� than previously forecast as private-sector retrenchment is made worse by fiscal consolidation and a “dysfunctional� financial system, Niesr said a quarterly report published today. Osborne will borrow 12.5 billion pounds more than planned in the year through March 2013, the London-based research group said. ‘Growing Expectations’ “Part of the story for sterling is the weak U.K. data we have had of late,� said Valentin Marinov, head of G10 currency strategy at Citigroup Inc. in London. There are “growing expectations for the Bank of England’s growth and inflation forecasts to be revised down� in next week’s Inflation Report, and that “could add to the headwinds for the pound,� he said. A gauge of U.K. services, which accounts for about three quarters of the economy, fell to 51 from 51.3 in June, Markit Economics and the Chartered Institute of Purchasing and Supply said. The median forecast of 29 economists in a Bloomberg News survey was for 51.6. A reading above 50 indicates growth. The Bank of England kept its bond-buying program unchanged and its main interest rate at a record low 0.5 percent yesterday. Sterling Rebound The yield on the 10-year gilt climbed five basis points to 1.49 percent, with the rate four basis points lower in the week. The 4 percent security due in March 2022 declined 0.550, or 5.50 pounds per 1,000-pound face amount, to 122.320. The two-year note yield advanced three basis points to 0.077 percent. Sterling rebounded yesterday from a three-week low against the shared currency after European Central Bank President Mario Draghi failed to persuade investors that policy makers would take the necessary measures to quell the euro-area debt crisis. U.S. payrolls rose by 100,000 workers last month following an 80,000 increase in June, according to the median forecast of economists surveyed by Bloomberg News. The jobless rate was 8.2 percent for a third consecutive month, the figures may show. Niesr previously forecast no change in output this year. A report on July 25 showed the first double-dip recession since the 1970s deepened in the second quarter this year. Osborne’s 2010 austerity program, which was extended for two years to 2017 in November, envisaged that the economy would be growing by 2.8 percent this year. Instead, it is 0.9 percent smaller than in the third quarter of 2010, shortly after Prime Minister David Cameron’s Conservative-led coalition took office. Gilts have returned 4.5 percent this year, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies showed. German bunds also earned 4.5 percent and U.S. Treasuries made 2.8 percent, the indexes showed. 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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