Sterling tumbles as BoE flags recession risks after rate hike



LONDON, May 5 (Reuters) - The pound and British government bond yields fell sharply on Thursday while the FTSE equity index rose, after the Bank of England raised rates to their highest since 2009 but warned that Britain risks falling into recession.

By 1121 GMT, sterling was down 1.2% against the U.S. dollar at $1.2477, extending earlier falls GBP=D3 . It also fell 1% against the euro to a five-week low of 84.98 pence <EUR GBP=D3>.

The BoE kept its forecast for economic growth this year at 3.75%, but slashed its forecast for 2023 to show a contraction of 0.25% from a previous estimate of 1.25% growth. It cut its growth projection for 2024 to 0.25% from a previous 1.0% .

UK gilt futures dropped and two-year gilt yields fell more than 12 basis points GB2YT=RR .

A split also emerged in the Monetary Policy Committee with two members saying the guidance was too strong, given the risks to growth.

Two members' suggestion that further hikes are not appropriate is resonating," said Neil Jones, head of hedge fund sales at Mizuho in London

London's FTSE stock index, however, took comfort from a weakening currency. It was last up 1.35% .FTSE , while UK bank stocks index .FTNMX301010 were flat.


Reporting by the London Markets Team,

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