Pound weakens after economic growth slows

Financeroll – The pound fell toward a one year low versus the dollar after a government report showed U.K. economic growth slowed more than analysts forecast last quarter, adding pressure on the central bank to keep interest rates low.

Sterling also weakened versus the yen on speculation the Bank of England will boost its program of bond purchases, or quantitative easing, as soon as its policy meeting tomorrow. The central bank will leave its main rate at a record low 0.5 percent at the gathering. Given where GDP is, QE kicks into place and that continues the sterling trend lower, but then at some point start to see economic data pick up into next year.

Sterling fell 0.2 percent to $1.5451 at 10:59 a.m. in London after declining to $1.5328 on Sept. 22, the weakest since Sept. 7, 2010. The pound dropped 0.4 percent to 118.53 yen, and was little changed at 86.10 pence per euro. GDP rose 0.1 percent from the first quarter, lower than the 0.2 percent previously published, the Office for National Statistics said today in London. Consumer spending plunged 0.8 percent, the most since the first quarter of 2009.

A gauge of services index unexpectedly rose in September, Markit Economics and the Chartered Institute of Purchasing and Supply said today. Services activity based on a survey of purchasing managers gained to 52.9 from 51.1 in August, the report showed. The 10-year gilt snapped a four-day gain, with the yield increasing six basis points to 2.31 percent. The two year rate was little changed at 0.58 percent. The pound has declined 1.3 percent in the past six months and weakened 2.4 percent in the past year. [BLB/FR]