Gilts rose for the first time in seven days and the pound weakened against the dollar on speculation further central bank asset-purchases may be required as the U.K.’s economic outlook worsens. Five-year U.K. government bonds also rose and sterling declined the most versus the yen in a week. The Bank of England restarted asset purchases this week amid threats to the economy and the financial system from the debt turmoil in Europe, Britain’s biggest trading partner. Charlie Bean, deputy governor of the U.K. central bank, said the monetary policy committee “could well decide” to expand quantitative easing again, the Guardian reported, citing an interview. “We’re expecting that another round of QE may be necessary once the current asset purchases are done,” said Sarah Hewin, a senior economist at Standard Chartered Bank in London. “The injection of more money into the economy ought to see gilt yields being held low.” The 10-year gilt yield dropped six basis points, or 0.06 percentage point, to 2.59 percent at 11:52 a.m. London time. The 3.75 percent security due September 2021 rose 0.515, or 5.15 pounds per 1,000-pound face amount, to 110.115. Yields on five- year securities declined five basis points to 1.41 percent while the 30-year yield dropped seven basis points to 3.50 percent. Britain’s economic outlook is worsening as the government implements its deepest public-spending cuts since World War II to reduce the nation’s fiscal deficit amid investor concern about the ability of governments around the world to repay debt. More Stimulus The worsening growth outlook prompted the central bank to announce an increase in the size of its bond purchases last week, expanding the program to 275 billion pounds from 200 billion pounds, the biggest increase since the first round of so-called quantitative easing in March 2009. Additional stimulus measures by the central bank may be announced “by the spring of 2012,” said Hewin. The pound fell 0.3 percent to $1.5708, after reaching $1.5798 yesterday, the strongest intraday level since Sept. 16. Sterling gained 0.1 percent to 87.44 pence per euro and weakened 0.7 percent to 120.90 yen. The declines came even after a report today showed the U.K. trade deficit on goods narrowed in August as exports rose to a record and imports fell. “Investors are increasingly turning bearish on sterling’s negative fundamentals,” said Valentin Marinov, a foreign- exchange strategist at Citigroup Global Markets Ltd. in London. “With further QE in the pipeline, this could be the beginning of a weakening trend in the pound.” Rising Unemployment U.K. unemployment rose to a 15-year high of 8.1 percent in the three months through August, from 7.9 percent in the quarter ended July, the Office for National Statistics said yesterday. Economic growth also slowed to 0.1 percent in the second quarter from the previous three month, the statistics office said last week, lower than the 0.2 percent previously published. Gilts have returned more than 10 percent to investors this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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