By Keith Jenkins and Emma Charlton
Dec. 23 (Bloomberg) -- The pound strengthened against the euro and rose from near a three-month low versus the dollar, as the newspaper Ta Nea reported Greek officials and bankers have decided on a debt-restructuring plan to begin after 2013.
The pound appreciated against 10 of its 16 most-traded counterparts as the Athens-based daily said Greece will ask for an extension on all outstanding debt and a cut in interest paid. Bank of England Markets Director Paul Fisher said in a newspaper interview that U.K. interest rates may rise to ?a normalized position? of about 5 percent.
Interest-rate expectations ?have moved back in favor of sterling so that should encourage euro-sterling lower as well as obviously being hit by the broader concerns about the euro-zone periphery and Greece,? said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.
The British currency appreciated 0.3 percent to 84.91 pence per euro at 4:15 p.m. in London, from 85.14 pence yesterday. Sterling gained 0.1 percent to $1.5397, from $1.5386 yesterday, when it reached $1.5356, its weakest level since Sept. 14. It rose earlier as much as 0.3 percent to $1.5437 after some analysts said Fisher?s comments may mean the central bank will lift the U.K.?s 0.5 percent benchmark interest rate.
?I don?t think a change of 25 or even 50 basis points is going to trigger a recession,? Fisher told the Daily Telegraph newspaper. ?But what we need to do is to trigger the mindset in people that that?s where rates will eventually go back to.?
Contraction Possible
The central-bank official also said it?s ?not impossible? the economy may contract for one quarter. Reports show retail sales are down in December as Britain experiences the worst early snowfall in 150 years. Third-quarter economic growth expanded 0.7 percent, the Office for National Statistics said yesterday, less than initially estimated.
?Paul Fisher is saying the data could be pretty volatile and therefore we can?t rule out a negative quarter for 2011,? said Steve Barrow, head of Group-of-10 currency strategy at Standard Bank Plc in London. ?Perhaps he?s also keeping an eye on the weather. That comes after the disappointing GDP figures yesterday.?
The U.K.?s output growth ?tends not to be that volatile quarter-to-quarter, but in this sort of situation when you are recovering from a deep recession it is not impossible? to see contraction over one quarter, Fisher said, according to the Telegraph story.
Home Loans Fall
A British Bankers Association report today showed U.K. banks granted 29,991 home loans in November, compared with 30,689 a month earlier. That was the fewest mortgage approvals since March 2009, when the economy was in the depths of the recession, the data showed.
?The overall picture of mortgage approvals is running at a super-low level, and whether it goes up or down on the month really is fairly immaterial given the absolute level of approvals that we have,? said Charles Diebel, head of market strategy at Lloyds TSB Corporate Bank in London.
The number of shoppers visiting stores in the U.K. fell 8.8 percent in the week ended Dec. 18, according to Synovate. On Dec. 19, the last Saturday before Christmas, traffic was down 24.3 percent, the market research company said. On average, the snow has pushed retail sales down as much as 15 percent a week, according to Andrew Wade, an analyst at Numis Securities in London.
?Poor Retail Performance?
?What is worrying is the poor retail performance in the run-up to Christmas; certainly the bad weather hasn?t helped, and we?ve actually downgraded our forecasts for the fourth quarter on the impact,? said Hetal Mehta, an economist at Daiwa Capital Markets Europe in London. ?We don?t see sterling losing much ground to the euro, but against the dollar, clearly U.S. growth is going to be fairly healthy next year because of the measures they?ve taken.?
The 10-year gilt yield was little changed at 3.50 percent. The 4.75 percent security due March 2020 rose 0.02, or 20 pence per 1,000-pound face amount, to 109.76. The two-year note yielded 1.22 percent.
Short sterling futures contracts declined. The contract expiring in December 2011 fell 0.03 to 98.60, pushing the implied yield higher by three basis points to 1.40 percent.
Gilts have returned 6.6 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Treasuries gained 5.6 percent and German debt, the euro-area?s benchmark securities, returned 6.2 percent, the EFFAS indexes show.
Slowing Economy
The U.K. economy slowed more than initially estimated in the third quarter and more than economists had expected, Office for National Statistics data showed yesterday. The 0.7 percent rise in GDP from the previous three months compared with an initial estimate of 0.8 percent, which was also the median forecast of 22 economists in a Bloomberg News survey. Second- quarter growth was 1.1 percent.
The U.K. economy will expand at a rate of 1.9 percent next year and 2.2 percent in 2012, according to analysts surveyed by Bloomberg. The U.S. economy is set to grow 2.6 percent in 2011 and 3.2 percent the next year, a Bloomberg survey showed.
--With assistance from Svenja O?Donnell in London. Editors: Greg Storey, Paul Cox
To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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