Sterling falls to day's low, gilt yields tumble as BoE signals rates near peak

LONDON (Reuters) - Britain's pound and gilt yields fell on Thursday after the Bank of England raised its main interest rate by 50 basis points to its highest since 2008 but dropped its pledge to keep increasing rates "forcefully".

Sterling initially strengthened after the announcement, with markets split on whether the central bank would opt for a smaller 25 bps rate rise.

It then lost its shine as markets digested the commentary and the central bank signalled rates were near their peak.

The pound was last down 0.7% at $1.2295 having hit a session low of $1.2276.

The euro rose 0.6% against the pound to 89.32 pence.

The FTSE 100 ticked lower shortly after policy announcement. It was last trading at the same levels where it was before the BoE decision, up 0.55%.

Britain's 10-year bond yield initially spiked but then fell below levels seen before the decision, and was last down 15 basis points to 3.156%. Yields move inversely to prices. 

(Reporting by the London Markets team, writing by Samuel Indyk; editing by Dhara Ranasinghe)