The pound gained versus the euro and the dollar while gilts rose amid concern that the U.S. and the euro-region nations will struggle to contain their debt burdens, increasing the relative appeal of U.K. assets. Sterling weakened against the yen as Bank of England policy maker David Miles said attempts to slow inflation too quickly risk stalling the economic recovery. European stocks fell as investors speculated that Europe’s sovereign-debt crisis will derail the economic recovery and as concern mounted that U.S. lawmakers will fail to agree on the federal government’s debt ceiling by next week’s deadline. “There’s nothing to support the pound at the moment, it’s all about the euro and the dollar,” said Chris Huddleston, a trader at Investec Bank Plc in London. “The idea that the U.S. might not reach a deal is still playing heavily on the market and that’s behind the moves that we are seeing. The focus is on the U.S. debt situation and also what’s going on in Europe, in Italy, Greece and Ireland.” The pound was 0.4 percent stronger against the euro at 87.62 pence at 11:13 a.m. in London. It fell 0.2 percent to $1.6307 after reaching $1.6439 yesterday, the most since June 14. Britain’s currency declined 0.3 percent to 126.96 yen. The Stoxx Europe 600 index slid 0.9 percent, while futures on the Standard & Poor’s 500 were little changed. Inflation “is likely to move higher in the near term, largely as a result of higher prices for domestic energy, before coming down again,” Miles said in a speech late yesterday at the London School of Economics. Bank of England officials said this month that the weakness in the economy may persist “longer than previously thought” as they kept the key interest rate at 0.5 percent. Sterling has fallen 8.5 percent in the last 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. U.K. government bonds climbed, pushing the yield on the 10- year gilt down four basis points to 2.94 percent. Two-year yields dropped two basis points to 0.66 percent. To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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