LONDON, May 9 (Reuters) - The pound and gilt yields fell on Thursday, while Britain's blue-chip stock index hit a record after the Bank of England took another step towards lowering interest rates, as a second official backed a rate cut.
Sterling fell as much as 0.4% against the dollar to $1.2446 , a two-week low. It was last at $1.2471.
The pound was at 86.04 pence per euro , down 0.1%.
The BoE said on Thursday its Monetary Policy Committee voted 7-2 to keep rates at a 16-year high of 5.25% after Deputy Governor Dave Ramsden joined Swati Dhingra in voting for a cut to 5%.
Economists polled by Reuters had mostly expected another 8-1 split to keep rates on hold.
"We believe the BoE is setting the stage for a summer rate cut," said Hussain Mehdi, director, investment strategy at HSBC Asset Management.
Money market traders still see around a 45% chance of a rate cut from the Bank of England at next month's policy meeting, while around 55 basis points of easing is priced by year end, implying two quarter-point cuts.
BoE Governor Andrew Bailey said future rate cuts may exceed those priced by the market.
"It's likely that we will need to cut bank rates over the coming quarters and make monetary policy somewhat less restrictive over the forecast period - possibly more so than currently priced into market rates," Bailey said in the post-decision press conference.
Markets fully price the first quarter-point rate cut by the August meeting, earlier than the U.S. Federal Reserve, where a 25 basis point rate cut isn't fully priced until November.
Money markets price the first easing from the European Central Bank in June.
"The pound has inevitably fallen on the news," said Jamie Dutta, market analyst at Vantage Markets.
"Policy divergence with the Fed is increasing, with the Bank of England now potentially more in tune with the ECB."
Gilt prices rose, pushing the yield on the benchmark 10-year gilt to 4.138%, little changed on the day. Bond yields move inversely with prices.
Britain's two-year gilt yield , which is more sensitive to changes in interest rate expectations, fell 2.5 bps to 4.288%.
Britain's blue-chip FTSE 100 stock index (.FTSE), opens new tab hit a new intraday record, rising 0.4% to 8394.01 points.
"European monetary policy easing and signs of a cyclical rebound support the outlook for the region's equity markets, which have performed well this year and remain attractively valued," HSBC AM's Mehdi said.
Reporting by Samuel Indyk; Editing by Amanda Cooper, Alexandra Hudson
