July 1 (Bloomberg) -- The pound slid to a 15-month low against the euro as a report showed U.K. manufacturing growth unexpectedly slowed in June, adding to evidence that the economic recovery is faltering. Sterling declined versus all but two of its 16 major counterparts tracked by Bloomberg, losing most against the Swedish krona. A gauge of factory output dropped to 51.3 in June from 52.1 in May, Markit Economics and the Chartered Institute of Purchasing and Supply said today. That's the lowest level since September 2009 and worse than the 52.3 reading predicted by the median estimate in a Bloomberg survey. "Sterling is being completely marginalized by the worsening economic growth outlook in the U.K.," said Peter Rosenstreich, chief foreign-exchange analyst at Swissquote Bank SA in Geneva. "If we continue to see an erosion in growth prospects then the possibility of rate hikes is virtually out of the question." The pound traded 0.2 percent weaker at 90.51 pence per euro as of 12:56 p.m. in London. It reached 90.84 earlier, the weakest intraday level since March 2010. Sterling was 0.3 percent lower against the dollar at $1.6005 and little changed at 129.17 yen. Britain's currency slid against the euro yesterday on bets a faltering economy will limit policy makers' ability to raise interest rates, at the same time that the European Central Bank lifts borrowing costs to curb inflation. A report yesterday showed U.K. consumer confidence fell more than economists forecast in June while the Bank of England's Credit Conditions Survey said mortgage demand will drop in the third quarter. Interest-Rate Bets Worsening economic growth has prompted traders to reduce bets on higher rates, with the implied yield on short-sterling futures expiring in March falling one basis point today to 1.04 percent, down from a high of 2.08 percent in February. Investors are betting the central bank will raise borrowing costs next May, according to forward contracts on the sterling overnight interbank average, data from Tullett Prebon Plc show. As recently as February, traders were betting on a rate increase in May of this year, the data showed. Ten-year gilt yields were two basis points lower than yesterday at 3.36 percent, while two-year yields were three basis points lower at 0.80 percent. Barclays Capital yesterday pushed back its forecast for interest-rate increases, saying the central bank will now probably keep its main rate unchanged until May 2012. The bank, which previously forecast a rate increase in November, said the change reflects weaker than previously expected economic growth and recent comments from central bank officials. Bank of England policy maker Adam Posen said on June 27 that a call by the Bank for International Settlements for higher rates worldwide to curb inflation was "nonsense." The pound has fallen 9.1 percent in the past 12 months, making it the second-worst performer among 10 developed-market currencies after the U.S. dollar, according to Bloomberg Correlation-Weighted Currency Indexes.

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