U.K. Pound May Decline on Signs House-Price Growth Is Slowing

Published 13th Jul 2007

The UK pound may decline for a second day on evidence house-price growth in the U.K. is slowing, fuelling speculation higher borrowing costs are starting to cool the property-market boom.

The U.K. currency slipped from its highest since June 1981 after a report yesterday showed property values in Britain rose at the slowest rate since January 2006 last month. Interest-rate futures trading shows traders have scaled back bets the Bank of England will raise interest rates to 6.25 percent this year.

Against the euro, the pound traded at 67.91 pence by 7:08 in a.m. in London, from 67.92 yesterday. It was also at $2.0289 versus the dollar from 2.0303 on July 12.

The number of real-estate agents and surveyors reporting higher home values in England and Wales in the three months to June outnumbered those seeing declines by 10.6 percentage points, the Royal Institution of Chartered Surveyors said yesterday.

The Bank of England lifted its main rate for a fifth time in a year last week to 5.75 percent to quell inflation that's held above its 2 percent target for a year.

Policy maker John Gieve said the central bank ``will monitor things closely'' and Britain's economy is ``continuing to hit growth forecasts despite rising rates and inflation.'' He made his remarks at a conference in northern England, Derby's Evening Telegraph newspaper reported July 11.

The yield on benchmark 10-year gilts rose 2 basis points to 5.47 percent yesterday in London, while the two-year yield rose 2 basis points to 5.74 percent. Bond yields move inversely to prices.

Investors expect a further quarter-point increase in borrowing costs by the end of the year, futures trading shows.

The implied yield on the December futures contract was 6.27 percent yesterday, 4 points lower than a week ago.
The contract settles to the three-month London inter-bank offered rate for the pound, which averaged about 15 basis points more than the central bank's key rate for the past decade.
By Gavin Finch

Source: ' Bloomberg '

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