LONDON (Reuters) - Sterling surged as financial markets moved to price in a greater chance of a rise in British interest rates this year on Thursday, spurred by as many as three members of the Bank of England's policy committee surprisingly voting for a hike.
Trading below $1.27 before the Bank's decision, the pound surged by a full cent to $1.2795 after it emerged that Ian McCafferty and Michael Saunders had voted with Kristin Forbes for higher rates.
Short sterling contracts for December of this year moved 6 basis points, raising the likelihood attached to a rise in the bank's main interest rates before the end of 2017. <0#FSS:>
Britain's main FTSE 100 index extended losses to hit a session low, down 1.1 percent, after the release, which deepened a slump in mid-caps, already seeing the sharpest one-day fall in nearly a year, down 1.9 percent.
Two-year gilt yields hit their highest since May 10 as prices tumbled and the euro zone's benchmark German 10-year bond yield also hit a day's high of 0.265 percent.
Reporting by Helen Reid, Ritvik Carvalho, Patrick Graham and John Geddie