U.K. government bonds rose before a report next week that economists said will show inflation stayed at a five-year low last month as oil prices fell. Almost two-thirds of Bloomberg customers in a survey conducted this week said the euro area is weakening, while 89% saw risk of slower price growth or deflation as a greater threat to the region over the next year than inflation. The Bank of England earlier this week cut its U.K. growth forecast for 2015 and 2016.
“The U.K. is not immune from spillover effects from the euro zone,” said Peter Kinsella, a senior foreign-exchange strategist at Commerzbank AG in London. “It is clear that the market is pricing out Bank of England rate hikes until late 2015 at the earliest. As a result, you are seeing some position- squaring that put downward pressure on the pound.”
Sterling dropped 0.7% to $1.5606 at 2:52 p.m. London time after falling to $1.5603, the least since Sept. 6, 2013. The U.K. currency, which headed for a 1.7% decline in the week, hasn’t slipped for four consecutive weeks since August. The pound depreciated 0.2% to 79.60 pence per euro and touched 79.61 pence, the weakest level since Oct. 17.
Sterling declined 1.6% in the past week, the worst performer after the Japanese yen, which fell 1.7%, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar climbed 0.3% and the euro was little changed.
The poll of Bloomberg customers was conducted on Nov. 11-12 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 4.3 percentage points. The survey was published before data today which showed Germany and France returned to growth in the third quarter while Italy’s economy shrank for a second quarter.
A separate report showed the euro area’s economy grew faster in the third quarter than analysts forecast.
The data “does not change by one iota the long-held view that we have been repeatedly espousing: the ECB, and the market, remains too optimistic on the short-term economic outlook,” James Ashley, chief European economist at RBC Capital Markets in London, wrote in an e-mailed note.
Investors said in the same survey the economy is in its worst shape in two years. A plurality of 38% of those surveyed this week described the global economy as worsening, more than double the number who said that in the past poll in July and the most since September 2012, when Europe was mired in a recession.
A report next week will show the U.K. consumer-price inflation rate rose 1.3% from a year ago in October, according to the median of analyst estimates in a Bloomberg survey. The rate was 1.2% a month earlier, the lowest since September 2009.
Oil prices collapsed into a bear market last month as leading OPEC members such as Saudi Arabia maintained production despite a global surplus triggered by surging U.S. shale supplies. Brent crude futures, used to price more than half the world’s oil, slumped to a four-year low in London today.
The 10-year gilt yield dropped two basis points, or 0.02 percentage point, to 2.17%, after touching 2.14%, the lowest level since Oct. 22. The 2.75% bond due in September 2024 rose 0.13, or 1.30 pounds per 1,000-pound face amount, to 105.13.
Gilts earned 9.8% this year through yesterday, according to Bloomberg World Bond Indexes, while German securities and U.S. Treasuries returned 8.3% and 4.9%, respectively.