Sterling tumbles after Bank of England raises rates to 1.25%

LONDON (Reuters) – Sterling fell sharply on Thursday, after the Bank of England (BoE) raised interest rates by 25 basis points, confounding forecasts by some market participants of a bigger hike to fight soaring inflation.

The pound was last at $1.2062 against the dollar, down 0.9% on the day and compared to $1.2165 just before the BoE decision. Against the euro, sterling fell to 86.29 pence and was down 0.5%.

Expectations that the BoE would hike by more than 25 basis points had grown after the U.S. Federal Reserve on Wednesday delivered its biggest hike since 1994 and the Swiss National Bank then shocked markets on Thursday with a surprise hike of its own.

The benchmark FTSE index index fell 2.41%, while 10-year UK government bond yields rose to 2.55%.

(Reporting By Lawrence White and Sujata Rao, Editing by Dhara Ranasinghe)