London: The pound and gilts declined on Friday after Britain's government posted an unexpected deficit for January, stirring concern that the UK's econ-omic recovery will trail other nations, including the US.
Sterling fell to the lowest level against the dollar in nine months as the US Federal Reserve unexpectedly raised the rate charged to banks for direct loans, driving the dollar higher and drawing attention to Britain's comparatively weaker economic expansion.
Data showed UK retail sales dropped more than twice as much as economists forecast in January, while jobless claims jumped to the highest level since April 1997.
"There is a high-debt issue with the UK, and both the government and central bank favour a weaker currency," said Peter Frank, a foreign-exchange strategist at Societe Generale SA in London. "All the surprises we're getting to the upside are coming elsewhere and the Fed decision reinforces that."
The pound fell 1.8 per cent against the dollar to $1.5445 (Dh5.669) Friday from $1.5701 a week earlier. It traded as low as $1.5357, the weakest level since May 19. Sterling dropped 1 per cent against the euro to 87.67 pence.
The yield on the 10-year gilt gained 13 basis points last week after rising 16 basis points during the previous week. It reached 4.18 per cent on Friday, the highest since November 2008, according to generic data compiled by Bloomberg.
Reducing Britain's budget deficit is at the centre of the debate between lawmakers as they prepare for a general election that Prime Minister Gordon Brown must call within weeks.
Britain is selling record amounts of debt after Chancellor of the Exchequer Alistair Darling introduced stimulus measures to haul the UK economy out of the recession. The UK is scheduled to sell £225.1 billion (Dh1.27 trillion) of gilts in the current fiscal year, which ends March.
