The pound dropped the most in a month and U.K. government bonds rose as signs of a fading global recovery curbed demand for assets that are correlated to economic growth. Sterling pared a weekly gain versus the U.S. currency and traded at the weakest level in more than six weeks against the euro as reports showed U.S. consumer prices and sentiment fell. British house prices are set to drop through 2012 as government spending cuts and tighter credit deter buyers, Capital Economics Ltd. said. “We’re leaning toward a risk-off environment and the pound tends to suffer when the world moves to risk-off,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. House-price data “is pointing toward stagnation, and that can be pound-negative,” he said. The pound fell 1 percent to $1.5307 as of 4:38 p.m. in London, its biggest decline since June 11. Sterling slid 2.1 percent to 132.36 yen and depreciated as much as 1 percent to 84.59 pence per euro, the least since June 1. The U.S. consumer-price index fell 0.1 percent in June, a third monthly decline, the Labor Department said today. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 66.5 in July from 76 a month earlier. The gauge was projected to fall to 74, according to the median forecast in a Bloomberg News survey of 62 economists. Gilts Gain The pound has still risen 1.6 percent for the week against the dollar after reports showed a greater-than-estimated drop in U.K. jobless benefits and stronger-than-forecast inflation. Sterling has gained 7.6 percent since reaching a low for the year of $1.4231 on May 20, as confidence rose that the government formed after the May 6 election will reduce Britain’s deficit without sending the nation back into recession. The pound was set for a 0.6 percent decline against the euro this week as growing optimism that the Greek debt crisis may be contained boosted the European currency. Ten-year U.K. government bonds jumped in afternoon trading after the U.S. confidence report was released, sending the yield four basis points lower to 3.33 percent, compared with 3.34 percent on July 9. The extra yield investors demand to hold U.K. 30-year bonds instead of equivalent-maturity German securities may narrow as Britain refrains from selling similar-maturity debt this quarter, BNP Paribas SA said. “We find tactical long gilt 30-year positions versus Germany tempting, particularly ahead of the launch of the new bund 2042” on July 21, Matteo Regesta, a fixed-income strategist in London, said by e-mail today. “The June inflation data still pointed to a continuation of the downward path” in the U.K. that started in May, he said. “The issuance calendar does not include further long-end issuance until at least October,” apart from one sale of a 2030 gilt, Regesta wrote. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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