U.K government bonds fell, pushing 10-year yields to a three-week high, on signs that Britain’s economic recovery is gaining traction, diminishing demand for the safest assets. Sterling rallied against the dollar after a report showed U.S. payrolls rose by 162,000 in July, less than the median estimate for 185,000 in a Bloomberg News survey of economists. The U.K. currency also appreciated after a construction index based on a survey of purchasing managers exceeded analyst predictions. Britain’s economy will grow faster this year than previously forecast as consumers increase spending, the National Institute of Economic and Social Research said. “The U.K. data is not constructive for gilts,� said Jason Simpson, a U.K. rates strategist at Banco Santander SA in London. “All the survey data for July rose and surprised on the upside giving further evidence that the economic recovery has legs and is gathering momentum.� The yield on the 10-year gilt rose four basis points, or 0.04 percentage point, to 2.45 percent, at 1:52 p.m. London time, and reached 2.49 percent, the highest since July 9. The price of the 1.75 percent bond due September 2022 dropped 0.285 or 2.85 pounds per 1,000-pound ($1,527) face amount, to 94.42. Two-year and 30-year gilt yields reached the highest levels since July 25, at 0.38 percent and 3.62 percent, respectively. Gilts lost 5.2 percent in the past three months, according to Bloomberg World Bond Indexes, as economic data pointed to growing strength in the British and U.S. economies. Treasuries slid 4.2 percent and German bunds declined 2.1 percent. House Prices An index of construction activity jumped to 57 for July, from 51 in June, Markit and the Chartered Institute of Purchasing and Supply in London said in a statement today. That’s the highest since June 2010. The median estimate of 13 economists in a Bloomberg News survey was for 51.5. A reading above 50 indicates expansion. U.K. house prices rose 0.8 percent in July, from 0.3 percent the previous month, Nationwide Building Society said. Values increased to an average 170,825 pounds, the most since June 2008. The nation’s gross domestic product will expand 1.2 percent this year and 1.8 percent in 2014, compared with forecasts in May of 0.9 percent and 1.5 percent respectively, Niesr said today. The pound strengthened against all 16 major currencies tracked by Bloomberg. The U.K. currency appreciated 1 percent to $1.5269, snapping a five-day drop. Sterling appreciated 0.5 percent to 86.91 pence per euro. Sterling has advanced 0.7 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro rose 4.5 percent and the dollar gained 2.6 percent. To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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