Pound jumps, UK bond prices fall after 'razor-edge' BoE vote on rates

(Adds quotes, more details of BoE decision)

By Alun John

Aug 7 (Reuters) -

The pound rallied and UK stocks and bond prices tumbled on Thursday after the

Bank of England cut interest rates

as expected, although concern over inflation among its policymakers stirred up unprecedented division.

Four of the BoE's nine policymakers voted to keep rates on hold, after the Monetary Policy Committee had to have two rate votes for the first time in its history.

The BoE is being pulled in different directions as Britain's job market has weakened in recent months, but inflation is rising.

The vote split suggests that more policymakers are prioritising the inflation side of that equation than investors had thought prior to the meeting, something that could cause them to pare back bets on further easing.

The pound rose as much as 0.6% to a session high of $1.343, before retreating to $1.3407, up 0.4% on the day.

Yields on UK government bonds, or gilts, rose, as traders reassessed how much more the BoE will cut rates this year.

The benchmark 10-year yield at one point rose over 6 basis points at 4.597%, and was last at 4.58%. Rate-sensitive two-year yields were up to 3.89%.

"Essentially the committee collectively is more concerned with the pace of disinflation, and that resulted in less willingness to cut rates across members than we had believed," said Philip Shaw, chief economist at Investec.

"We are still for now forecasting a 25 bps cut to rates in November, but clearly we could be looking at another very finely balanced decision and the outturn will of course depend on the data between then and now. "

London's blue chip FTSE 100 index extended an earlier loss, and was last down 0.8%, with the mid cap FTSE250 index giving back earlier gains to trade just below flat. The broad European benchmark was up nearly 1%.

"Going forward, further disagreements should be anticipated as members' positions become increasingly entrenched, reflecting the increasing divergence of key data points," Jeremy Batstone-Carr, a strategist at Raymond James Investment Services, said, calling the rate decision "razor-edged".

(Additional reporting by Stefano Rebaudo and Danilo Masoni in Milan and Lucy Raitano in London; editing by Amanda Cooper and Ed Osmond)