Pound Weakens for Third Day Against Euro on Outlook for Additional Easing

The pound weakened for a third day against the euro on speculation U.K. central-bank minutes tomorrow will signal policy makers are leaning toward further monetary stimulus as growth slows.

Sterling dropped to a three-week low versus the shared currency even after a report showed Britain’s budget deficit narrowed in October as Chancellor of the Exchequer George Osborne slashed government spending. Prime Minister David Cameron said yesterday Britain is “well behind” where it needs to be on economic growth. The Debt Management Office sold 3.5 billion pounds ($5.5 billion) of index-linked gilts.

“The weakness against the euro reflects clearly what’s going on with sterling,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Cameron admitted yesterday that the debt-reduction strategy is off track. Widespread downward revisions in the U.K. growth forecast imply that reduction targets will be harder to meet.”

The pound declined 0.3 percent to 86.53 pence per euro at 12:47 p.m. London time, after falling to 86.60 pence, the weakest level since Oct. 31. Sterling was little changed at $1.5652 and 120.33 yen.

The U.K.’s net borrowing excluding support for banks fell to 6.5 billion pounds from 7.7 billion pounds a year earlier, the Office for National Statistics said in London. Outlays at government departments dropped 3.1 percent.

The Bank of England kept its target for asset purchases unchanged at its policy meeting on Nov. 10. The nine-member Monetary Policy Committee led by Governor Mervyn King held the ceiling for so-called quantitative easing at 275 billion pounds, after expanding QE by 75 billion pounds in October.