The pound fell for a third straight day against the dollar and gilts rose after the Bank of England cut its forecast for U.K. economic growth and said inflation will undershoot its target in 2012. Sterling also dropped versus the yen after the Federal Reserve said yesterday the U.S. recovery will be slower than expected, deepening concern that global growth is slowing. British consumer confidence slid for a third month in July, Nationwide Building Society said today, while the number of people claiming jobless benefits in the U.K. declined less than analysts estimated. “The deceleration in the U.S. and the coming deceleration in the U.K. is weighing on the pound and the risk is back to the downside,” said Jeremy Stretch, global head of foreign-exchange strategy at CIBC World Markets in London. “We’ve seen a very strong second quarter and people are asking whether that’s the high watermark.” The pound fell 1.1 percent to $1.5679 as of 10:50 a.m. in London. It dropped 1.5 percent to 133.47 yen. Sterling gained 0.1 percent against the euro to 83.07 pence. Inflation will be at about 1.5 percent in two years, lower than the 2 percent goal, the central bank said in its quarterly Inflation Report in London today. Economic growth may peak at a 3 percent annual pace instead of the 3.6 percent rate forecast in May. ‘Dovish Report’ “It is certainly a dovish report,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks. It’s a “slight surprise the CPI projection for end of forecast is even lower than the May report. A rate hike is unlikely before May 2011 now.” The yield on the U.K. short-sterling futures contract expiring in September 2011 fell seven basis points to 1.16 percent as investors added to bets interest rates will stay lower for longer. Sterling has gained 10 percent against the dollar from the lowest level this year of $1.4231, reached on May 20, on speculation Prime Minister David Cameron’s plans to cut spending will enable the nation to keep its AAA rating. The currency has retreated 1.6 percent this week amid increasing signs budget cuts may dent growth. The Nationwide index of sentiment slumped seven points from the previous month to 56, the customer-owned lender said. Analysts forecast a decline to 61, according to the median estimate in a Bloomberg survey. The number of people claiming jobless benefits in the U.K. in July declined 3,800 to 1.46 million, the Office for National Statistics said today. The median forecast of 27 economists in a separate survey was for a drop of 17,000. Unemployment fell 49,000 to 2.46 million in the three months through June. Bonds Advance Government bonds advanced, with the 10-year yield falling 10 basis points to 3.15 percent, after earlier slipping to 3.14 percent, the lowest since April 2009. The two-year note yield fell five basis points to 0.71 percent, narrowing the difference in yield with 10-year bonds to 243 basis points, the least since December. Gilts returned 6.5 percent so far this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. debt has returned 7.3 percent and German securities have also handed investors a 7.3 percent profit. The U.S. Fed said in its policy statement yesterday “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.” The central bank left the overnight interbank lending rate target in a range of zero to 0.25 percent, where it’s been since December 2008.

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