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* FTSE 100 up 0.3%, FTSE 250 adds 0.7%

* Bank of England cuts rates by a quarter point to 5%

* Rolls-Royce shares hit record high after forecast raise

* Shell gains after quarterly profit beat

Aug 1 (Reuters) - London's FTSE 100 extended gains on Thursday after the Bank of England cut interest rates from a 16-year high at its latest monetary policy decision, while positive corporate updates further uplifted the sentiment.

The blue-chip FTSE 100 index was up 0.3%, trading at highs last seen in May. The mid-cap FTSE 250 erased its losses and was last up 0.7% at its highest since February 2022 by 1130 GMT.

The BoE trimmed interest rates by a quarter point to 5% from a 16-year high after a narrow vote in favor from policymakers, making it the first cut from the central bank since 2020.

However, BoE Governor Andrew Bailey said that the Monetary Policy Committee would move cautiously going forward, as policymakers were divided over whether inflation pressures had eased sufficiently.

"The market pricing had moved towards a rate cut as well (in the last few days), so, it was largely anticipated," said Hetal Mehta, head of economic research at St. James's Place.

"The BoE have probably started (a cycle) that is going to be several rate cuts, but I wouldn't expect them to necessarily be back to back," Mehta added.

The pound fell to its lowest in a month, and was last down 0.7% against the U.S. dollar.

Rate-sensitive sectors like homebuilders and real estate investment trusts jumped over 1% and 1.5%, respectively, following the decision.

In the market, aerospace and defense shares led gains with a 4.4% rise, lifted by Rolls Royce, whose shares hit a record high, after the aerospace engineer raised its guidance for operating profit and free cash flow after a strong first half.

Shell added 1.7% after it reported a profit of $6.3 billion, beating analysts' forecasts, but fell 19% quarter-on-quarter.

Meanwhile, the U.S. Federal Reserve, despite holding rates steady overnight, opened the door to a September cut, which boosted investor sentiment globally. (Reporting by Purvi Agarwal in Bengaluru; Editing by Sonia Cheema and Vijay Kishore)