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Sterling rises as house prices surge

Friday, December 06 16:01:08

Sterling gained today after a report showed British house prices rose more than expected last month, reinforcing optimism about the economy and expectations that monetary policy tightening will be brought forward.

House prices rose at their fastest pace in more than six years in November but could slow as weak wage growth pressures personal finances, mortgage lender Halifax said on Friday.

Average house prices in the three months to November were 7.7 percent higher than a year earlier.

This contrasted sharply with data from Germany that showed industrial orders posting their biggest fall in nearly a year in October as demand for capital goods weakened.

The euro was 0.1 percent lower at 83.55 pence at 1448 GMT .

"The data flow is supportive of sterling relative to the euro, and I would look to sub-80 pence for the euro into next year," Barrow said.

Gilts outperformed Bunds slightly, with the 10-year yield spread narrowing a basis point to 104 basis points, its narrowest in over a week.

Analysts said the outlook for Britain's public finances was supportive, despite the lack of reaction to the government's budget update on Thursday.

"The short-run implications for the gilt market are not significant. However, the improved paths for the deficit and debt profiles are clearly helpful," said John McNeill, fixed income manager at Kames.

"Any further talk of ratings downgrades will be off the agenda for now."

Britain's strong economic rebound has lifted expectations that the Bank of England will raise interest rates from current record lows sooner than its 'forward guidance' anticipates, although a Reuters poll this week saw no hike until 2015.