LONDON, Sept 19 (Reuters) - The British pound and governmentbond yields fell on Thursday after the Bank of England keptinterest rates on hold as expected but for the first timedetailed damage from a further Brexit delay could cause to theeconomy.
The BOE which decided unanimously to keep its bank rateunchanged at 0.75%, said Brexit uncertainty was causing slack tore-emerge in Britain's economy and damaging productivity.Failure to reach a transition deal by Oct. 31 could lead to moreweakness while delaying an EU exit would also be negative forgrowth, it added.
The yield on 10-year gilts fell 2 bps on the dayto 0.62%, the lowest level in a week. Sterling fell 0.25% at$1.2438. The pound fell towards the day's lows after thestatement, down 0.25% at $1.2438 versus a broadly weak dollar.
The fall in sterling led London's blue-chip stocks index toextend gains and hit the day's high. At 1126 GMT, the FTSE 100was up 0.7%, set for its best day in a week-and-a-half.
"Cuts [in rates] are increasingly likely due to theprolonged uncertainty around Brexit. In fact, considering howsensitive the UK banking system is to softening house prices, wewouldn't be surprised if the Bank of England gets ahead of thecurve," Artur Baluszynski, head of research at Henderson Rowe,said(Reporting by the London markets team, writing by YorukBahceli)