(Fixes typo in headline)
LONDON, Sept 19 (Reuters) - The British pound and government bond yields fell on Thursday after the Bank of England kept interest rates on hold as expected but for the first time detailed damage from a further Brexit delay could cause to the economy.
The BOE which decided unanimously to keep its bank rate unchanged at 0.75%, said Brexit uncertainty was causing slack to re-emerge in Britain’s economy and damaging productivity. Failure to reach a transition deal by Oct. 31 could lead to more weakness while delaying an EU exit would also be negative for growth, it added.
The yield on 10-year gilts fell 2 bps on the day to 0.62%, the lowest level in a week. Sterling fell 0.25% at $1.2438. The pound fell towards the day’s lows after the statement, down 0.25% at $1.2438 versus a broadly weak dollar.
The fall in sterling led London’s blue-chip stocks index to extend gains and hit the day’s high. At 1126 GMT, the FTSE 100 was up 0.7%, set for its best day in a week-and-a-half.
“Cuts [in rates] are increasingly likely due to the prolonged uncertainty around Brexit. In fact, considering how sensitive the UK banking system is to softening house prices, we wouldn’t be surprised if the Bank of England gets ahead of the curve,” Artur Baluszynski, head of research at Henderson Rowe, said (Reporting by the London markets team, writing by Yoruk Bahceli)