June 20 (Reuters) - London stocks edged higher on Thursday, as the Bank of England kept rates on hold as expected, while hopes increased for a rate cut in August after Governor Andrew Bailey cheered inflation's return to the 2% target.
The blue-chip FTSE 100 (.FTSE), opens new tab rose slightly after the decision, gaining 0.4% to a more than a week-high and set to register a third straight day of gains.
The mid-cap FTSE 250 (.FTMC), opens new tab was up 0.4% at 20,461.46.
The BoE's Monetary Policy Committee voted 7-2 to keep rates at a 16-year high of 5.25% ahead of a July 4 election.
Governor Bailey said it was "good news" that inflation is back at 2%. He added the bank "needs to be sure that inflation will stay low" before cutting rates.
Markets now see a 45% chance of a rate cut in August, compared with 30% before the rate decision. 0#BOEWATCH
The pound slipped 0.2% against the U.S. dollar and was last at $1.2687. The UK's 5-year gilt yield <GB5YT=RR> fell marginally and was trading at 3.9%.
"Markets are pretty muted in reaction because nothing happened today, but there is this slight guidance that a cut is to be expected later this summer," said Patrick Armstrong, chief investment officer at Plurimi Wealth.
"The current decision was 'on a knife edge' and indicates it may not take much further evidence on inflation to provoke a cut later this summer."
Rate-sensitive homebuilders (.FTNMX402020), opens new tab spiked higher, advancing 0.7%, while precious metal miners (.FTNMX551030), opens new tab were the top gainers among FTSE 350 sectors as bullion prices climbed to a two-week high on softer U.S. economic data.
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Shares of Ocado(OCDO.L), opens new tab fell 14.4% after the online supermarket's Canadian partner paused a planned opening of a Vancouver warehouse.
CMC Markets (CMCX.L), opens new tab soared nearly 7% after the trading platform posted a 52% jump in its annual adjusted pre-tax profit.
Tate & Lyle (TATE.L), opens new tab fell 7.5% after the London-headquartered food ingredients maker entered into an agreement to buy U.S.-based CP Kelco for $1.8 billion from J.M. Huber Corp. Its shares were also trading ex-dividend.
Reporting by Pranav Kashyap in Bengaluru; Editing by Sherry Jacob-Phillips and Mohammed Safi Shamsi
