Sterling hits nine-month low vs. euro as BoE keeps rates on hold
The BoE said it expected Britain's economy would grow by 1.7 percent this year, down from its May forecast of 1.9 percent. It also lowered by a fraction its forecasts for inflation which it now sees at just under 2.6 percent in a year's time after peaking at around 3 percent in October.
"The 6-2 vote was as expected. However the dovish growth and inflation (forecasts were) a surprise to the markets," said Mizuho's head of hedge fund FX sales, Neil Jones.
Sterling weakened to 90.02 pence per euro after the rate decision and Inflation Report, down 0.4 percent on the day and the weakest since early November.
It also fell almost a cent against the dollar, plumbing a three-day low of $1.3156 <GBP=D3>, down half a percent on the day.
British government bond yields fell sharply. The 10-year gilt yield <GB10YT=RR> plunged 4 basis points to 1.194 percent, its lowest since Friday.
Short sterling interest rate futures <0#FSS:> gained around 4 ticks across the 2018 contracts, implying a shallower path of future interest rate hikes.
Britain's main share index <.FTSE>, whose internationally focussed constituents tend to gain when sterling falls, climbed to the day's high, up 0.4 percent, with mid-caps <.FTMC> also up 0.3 percent at their highest level of the day.
(Reporting by Jemima Kelly, Andy Bruce and Helen Reid; Editing by Nigel Stephenson)