The pound headed for its fourth weekly decline against the euro as the National Institute of Economic and Social Research said the U.K. economy’s pace of growth more than halved in the third quarter. Sterling earlier reached its weakest level in five months against the 16-nation euro after reports showed faster-than- expected producer inflation and slower gross domestic product growth than the same period last year. The pound rallied after Federal Reserve Bank of St. Louis President James Bullard said the risk of a double dip recession has “probably receded.” “In the short term, pressure might still be to the downside for sterling,” said Paul Robinson, head of European currency strategy Barclays Plc in London. “There is justification for some fear, but it might perhaps be overplayed” as other indicators point to a recovery, he said. Sterling strengthened 0.2 percent to 87.56 pence per euro as of 11:33 a.m. in London, after earlier depreciating to 88.06 pence, the weakest level since May 7. The currency is 0.4 percent weaker since Oct. 1. It lost 0.2 percent to $1.5852, paring a weekly gain versus the dollar to 0.2 percent. Gross domestic product rose 0.5 percent in the three months through September, compared with 1.2 percent in the quarter through June, the London-based Niesr, whose clients include the Bank of England, said late yesterday. The BOE yesterday left interest rates at a record low and maintained bond purchases to stimulate the economy. Yearly Drop The cost of goods at factory gates rose by 0.3 percent in September, according to a report from the U.K. statistics office today. That’s above the median forecast of 18 economists in a Bloomberg News survey for a 0.1 percent gain. Sterling has lost 4.8 percent this year against a basket of its developed-country peers, according to Bloomberg Correlation- Weighted Currency Indexes, amid speculation that the U.K.’s economic recovery is slowing before government spending cuts are imposed to reduce a record budget deficit. The statistics office will publish its own first estimate of third-quarter growth on Oct. 26, six days after the government announces details of its cuts. A report by Halifax yesterday showed U.K. house prices plunged in September by the most since at least 1983, when the gauge began. Other data from the Office for National Statistics showed manufacturing output increased in August by more than economists predicted. U.K. government bonds rose, with the 10-year yield dropping 3 basis points to 2.90 percent. The two-year yield dropped 2 basis points to 0.63 percent. “Gilts are doing rather well as the market is still concerned about what the Bank of England will do,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The market is also looking globally in terms of central banks making a concerted effort to stimulate global growth through monetary stimulus, and that is a supportive factor for gilts, as well as all bonds in general.” To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Stephen Morris in London at smorris39@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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