Pound falls on Bank's rate comments

The pound fell after the Bank of England increased interest rates but indicated that any future rises would be "very gradual".

As had been widely expected, the Bank raised rates from 0.25% to 0.5%, with seven of the nine Monetary Policy Committee members backing the increase.

But it repeated previous guidance that any future rises would be "at a gradual pace and to a limited extent".

Sterling fell nearly two cents against the dollar to $1.3062.

Against the euro, the pound was also down nearly two cents at €1.1204.

Although the Bank reiterated its guidance of "limited" and "gradual" future rate rises, it did not repeat comments suggesting the financial markets were underestimating the extent of future rises.

"The pound and gilt yields slid sharply on the back of the removal of the line that interest rates may have to rise faster than markets currently expect," said Michael Hewson, chief market analyst at CMC Markets UK.

"The removal of this line suggests that any further hikes are likely to come much further out into 2018."

In contrast, the benchmark FTSE 100 share index rose following the Bank's decision, closing 67.36 points higher at 7,555.32.

The index often rises when sterling falls, as the weaker currency increases the value of companies' overseas earnings when they are brought back to the UK and converted back into pounds.