LONDON, Aug 1 Reuters The Bank of England cut interest rates from a 16year high on Thursday after a narrow vote in favour from policymakers divided over whether inflation pressures had eased sufficiently, which initially dented the pound.

Thursday39;s decision was in line with the forecast in a Reuters poll of economists but financial markets had only seen just over a 60 chance of a cut.

Governor Andrew Bailey who led the 54 decision to lower rates by a quarterpoint to 5 said the BoE39;s Monetary Policy Committee would move cautiously going forward.

We need to make sure make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much, he said in a statement alongside the decision.

MARKET REACTION

STOCKS The bluechip FTSE 100 extended gains, rising 0.3 on the day, while the domestically focussed FTSE 250 midcap index gained 0.5 and was at its highest in over two years.

FOREX Sterling fell to a session low of 1.2752 immediately after the decision, before reversing some of those losses to trade at 1.2766, down 0.7 on the day. It was also softer against the euro which was up 0.36 at 84.5 pence.

BONDS Benchmark 10year gilt yields were last down 4 basis points on the day at 3.941, compared with 3.936 before the decision. Twoyear gilt yields , which are more sensitive to shifts in monetary policy, were down 5.7 bps at 3.754, around 15month lows.

COMMENTS

COLIN ASHER, ECONOMIST, MIZUHO, LONDON

If you look at the headlines that Bailey…