The pound appreciated toward its strongest level in seven years versus the euro amid speculation the European Central Bank will announce a plan to buy the region’s government bonds. Sterling climbed against the dollar as Britain posted a larger budget deficit than economists forecast in December. Bank of England policy maker David Miles said slowing inflation has eased pressure on officials to raise interest rates from a record low, in a speech in Edinburgh Thursday. U.K. government bonds declined with German bunds and U.S. Treasuries after the ECB held interest rates at record lows and said further measures would be announced later. “We expect the euro to weaken further against the pound over the course of 2015,� said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura International Plc in London. The pound may appreciate to 75 pence per euro this week, matching Nomura’s full-year forecast, he said. VIDEO: Pound to Gain Versus Euro on Rates Outlook: BNP Paribas The U.K. currency gained 0.3 percent to 76.48 pence per euro at 12:47 p.m. London time. It reached 75.96 pence per euro on Jan. 16, the strongest level since February 2008. Sterling rose 0.4 percent to $1.5200. Sterling has appreciated about 1.5 percent this month versus the common currency, extending gains from December, as investors bet the ECB will add stimulus that would typically devalue the euro as it seeks to stoke inflation in the region. Deficit Surprise The central bank’s Governing Council is considering a proposal by President Mario Draghi and the Executive Board to spend as much as 1.1 trillion euros through monthly asset purchases of 50 billion euros until December 2016, two euro-area central-bank officials said on Wednesday. STORY: Can Europe Save Itself by Weakening the Euro? U.K. net borrowing excluding public-sector banks was 13.1 billion pounds compared with 10.3 billion pounds a year earlier, the Office for National Statistics said Thursday. The median forecast in a Bloomberg survey was 9.7 billion pounds. Government revenue rose 2.3 percent and spending increased 5 percent. Miles said Britain’s inflation rate may move further away from the BOE’s 2 percent target and even dip below zero in the coming months. While the U.K. is a “long way� from a deflation trap and new stimulus isn’t needed, recent developments also mean there’s no rush to tighten policy, he said. The central bank’s Monetary Policy Committee voted unanimously to keep interest rates on hold this month for the first time since July, minutes from the meeting published Wednesday showed. VIDEO: Could EU Inflation Bolster Draghi’s Calls for QE? Rate Forecast Nomura now forecasts the next BOE interest-rate increase will come in February 2016 after the MPC unanimous vote, McDarby said. “Despite this, the pound is still performing very well on a trade-weighted basis and pound-dollar is no longer being dragged lower by the relentless fall of euro-dollar,� he added. The euro rose 0.2 percent to $1.1630, moving away from an 11-year low of $1.1460 set on Jan. 16. Benchmark 10-year gilt yields rose six basis points to 1.57 percent. The 2.75 percent bond due in September 2024 fell 0.605, or 6.05 pounds per 1,000-pound face amount, to 110.505. The rate reached 1.46 percent on Wednesday, the lowest since August 2012. The 30-year gilt yield jumped eight basis points to 2.26 percent. STORY: How Rate Rigging Squeezed U.K. Farmers Ten-year Treasury (USGG10YR) yields climbed five basis points to 1.93 percent and the rate on similar-maturity German bunds rose four basis points to 0.56 percent. To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord

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