TEP – 16 November 2007

The pound dropped to a three-week low against the dollar after a report showed U.K. retail sales fell for the first time in nine months in October, reinforcing the case for the Bank of England to cut interest rates.

The pound also traded near its lowest in 4 1/2 years against the euro after government data suggested borrowing costs at a six-year high of 5.75 percent are curbing the willingness of U.K. consumers to spend. The central bank this week forecast economic growth will slow ``sharply'' in 2008 and signaled at least one cut in the benchmark lending rate.

The Bank of England has sent a clear message they have an easing bias, and sterling is going to come under further pressure. The near-term prospects for sterling are unsupportive,

The pound against USD traded at $2.0454 and against SGD traded at $2.971.

Barclays Writedown

The pound was further weakened and gilts supported after Barclays Plc, the U.K.'s third-biggest bank, said it wrote down about 1.3 billion pounds on securities tied to U.S. subprime mortgages.

Retail sales unexpectedly fell 0.1 percent, compared with an increase of 0.3 percent in September, the Office for National Statistics said. Economists in a Bloomberg News survey had expected a 0.1 percent gain.

Assuming a reduction in borrowing costs next year, inflation will slow to its 2 percent target by 2009, the Bank of England said in its quarterly report yesterday. Prices grew 2.1 percent last month. Turmoil in financial markets ``poses the biggest downside risk'' to Europe's second-largest economy, according to the report.



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