The pound fell versus the dollar, erasing an earlier gain, after the Bank of England said the U.K. economy may contract this quarter as it cut its outlook. The currency extended a drop against the euro as central bank Governor Mervyn King said there was a “greater risk that the U.K. economy may be in a period of persistent low growth.� Gilts stayed lower. Sterling slid 0.1 percent to $1.5860 at 11:25 a.m. London time, after rising to $1.5901. It weakened 0.3 percent to 80.32 pence per euro. The benchmark 10-year gilt yield rose four basis points, or 0.04 percentage point, to 1.75 percent. The 1.75 percent bond maturing in September 2022 dropped 0.34, or 3.40 pounds per 1,000-pound face amount, to 100.01. Sterling has gained 1.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro fell 3.1 percent and the dollar dropped 1.2 percent. To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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