29 October 2001, 17:18  British Pound Surges on Weak Outlook for U.S. Economic Growth

By John Beresford-Peirse, Chris Gothard and James Amott
London, Oct. 29 (Bloomberg) -- The British pound had its biggest one-day gain against the dollar since the Sept. 11 terrorist attacks on the U.S. on expectations reports this week will provide further evidence the biggest economy is contracting.
The pound rose as high as $1.4508 from $1.4344 Friday, the highest since Oct. 18. Sterling has risen 2 percent against the dollar in the past five days, paring the loss for the month to 1.6 percent. It was trading at 62.11 pence per euro, from 62.19.
``We bought more sterling against the dollar'' last week, said Scott Barlass, director of currency at Abbey National Asset Managers, where he oversees 14 billion pounds ($20 billion). U.S. data ``will be on the negative side of expectations -- dollar strength was unjustified.''
Reports due on Wednesday may show the U.S. economy shrank in the third quarter. Others will probably show consumer confidence and manufacturing fell in October, while unemployment rose. Following news last week that the British economy expanded more than expected in the three months to September, investors may be more attracted to U.K. assets and the currency needed to buy them.
``There's a sense that traders don't want to buy dollars going into the main U.S. numbers this week,'' said Michael Derks, chief international economist at Commonwealth Bank of Australia.
The U.S. economy probably contracted 1 percent in the three months ended in September, analysts surveyed by Bloomberg News said. That would be the biggest drop since a 2 percent slide in the first quarter of 1991.
`Overly Confident'
``I can't see the U.S. growth figures being impressive,'' said Rob Howard, a currency analyst at Thomson Global Markets. ``Markets may be overly confident about the U.S.'s ability to recover.''
The U.K. economy expanded 0.6 percent in the third quarter, faster than the second quarter's 0.4 percent, a report on Friday showed. The U.S. and U.K. reports are the first growth figures to reflect the impact of the terrorist attacks on the U.S.
Abbey National's Barlass said he expects the pound to rise as high as $1.48 in the next month on investor's confidence about U.K. growth prospects. ``Our favorite currency is sterling at the moment,'' he said.
In a further sign the British economy remains robust, U.K. consumer borrowing grew at a faster rate in September than in August, the Bank of England said, suggesting consumer confidence wasn't hurt by the attacks on the U.S.
Consumer credit grew 1.5 billion pounds ($2.16 billion) in September, more than the 1.2 billion pounds analysts surveyed by Bloomberg News had expected. Mortgage lending grew 4.5 billion pounds, less than August's record 5.1 billion pounds.
In a report on Friday, the National Institute for Economic and Social Research said the U.K. economy will probably grow faster this year and next than any other in the Group of Seven industrialized countries.
In a separate report today, the U.K. central bank said its broad measure of money supply, M4, grew 1.1 percent in September. From a year ago, M4 rose 8 percent. Sterling lending under the M4 measure rose 6.1 billion pounds.

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