The U.K. pound dropped against the dollar and the euro as a report added to evidence the recession is deepening, prompting speculation the central bank will cut interest rates further. The pound also declined from the highest level in almost three months against the Japanese yen as gross domestic product contracted the most since 1980 in the fourth quarter. Britain’s currency dropped as the government prepared to start a program to insure lenders against losses on toxic assets. “The underlying fundamentals remain weak and that’s having a short-term impact on sterling,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London. “Sterling is losing a bit of momentum.” The pound fell 0.7 percent to $1.4379 as of 12:05 p.m. in London, after appreciating 0.9 percent $1.4607. It was at 138.79 yen, after earlier reaching 141.78 yen, the highest level since Dec. 1. It slipped 0.2 to 88.90 pence per euro. Investors may resume buying the currency at 89.10 pence per euro and $1.4390, Stretch said. The U.K. economy contracted 1.5 percent in the fourth quarter from the previous three months, less than the 1.6 percent forecast by economists in a Bloomberg survey. European Union officials are concerned the pound’s slide to a record low against the euro could destabilize the British economy, according to a document prepared last month by European Commission and EU finance ministry officials. The pound slumped 23 percent versus the euro and lost 26 percent against the dollar in 2008 as the economy slipped into a recession

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