(Updates with further details)

By Alun John

LONDON Aug 7 (Reuters) - British bond yields rose on

Thursday, sending the pound higher after the Bank of England cut

interest rates as expected but concern over inflation among

policymakers caused markets to reduce the amount of further rate

cuts they expect this year.

Four of the BoE's nine policymakers voted to keep rates on

hold, with the Monetary Policy Committee needing two votes for

the first time in its history to settle on a 25 basis point rate

cut.

The BoE is being pulled in different directions as Britain's

job market has weakened in recent months, but inflation is

rising - the BoE's updated projections from Thursday show

headline CPI peaking at 4% next month.

The second vote was required after one policymaker voted for

a larger 50 basis point cut but, with four voting to hold, more

policymakers are prioritising the inflation side of that

equation than investors had thought prior to the meeting.

"Essentially the committee collectively is more concerned

with the pace of disinflation, and that resulted in less

willingness to cut rates across members than we had believed,"

said Philip Shaw, chief economist at Investec.

"We are still for now forecasting a 25 bps cut to rates in

November, but clearly we could be looking at another very finely

balanced decision and the outturn will, of course, depend on the

data between then and now."

Yields on British government bonds, or gilts, rose, and the

rate-sensitive 2-year yield was last up 5 basis points at 3.88%.

Thursday's move was the Bank of England's fifth cut since

August last year. Ahead of the meeting, markets had fully priced

a further 25 basis point cut late this year, but the vote split

caused traders to become less certain that would materialise.

Trading was choppy, but LSEG data last indicated around a

75% chance of another such rate cut this year.

The benchmark 10-year yield at one point rose more than 6

basis points at 4.597%, and was last at 4.57%.

Bank of England Governor Andrew Bailey, who voted to cut,

said that he thought rates were still on a downward path.

But, he added, "There is, however, genuine uncertainty now

about the course of that direction of rates."

STRONGER STERLING

The pound rose after the decision, and was last up 0.55% on

the dollar at $1.3424, and was stronger by a similar amount on

the euro at 86.71 pence to the common currency.

That reaction to higher gilt yields is what would typically

be expected to happen, as currencies are often shaped by rate

differentials between markets, but, on several occasions this

year, worries about Britain's fiscal position have seen the

pound fall at the same time as gilt yields rose.

A slower pace of Bank of England easing could support the

pound further, and is causing some investors and analysts to

reassess their positions on the British currency.

"We've been long euro-sterling for the last couple of

months. It's been a good trade and part of that has been the

risk of a dovish BoE relative to a more hawkish ECB," said

Dominic Bunning, head of G10 FX strategy at Nomura.

"Today's developments probably do put that position into

question. It will certainly make us think about our conviction

on that one."

The European Central Bank is likely already at the end of

its rate cutting cycle, but markets anticipate more rate cuts

from the U.S. Federal Reserve.

Less BoE easing and higher yields is bad news for most

stocks, however.

London's blue-chip FTSE 100 index extended an

earlier loss, and was last down 0.8%, with the mid-cap FTSE 250

index giving back earlier gains to trade just below flat.

The broad European benchmark was up nearly 1%.

(Additional reporting by Stefano Rebaudo and Danilo Masoni in

Milan and Lucy Raitano and Samuel Indyk in London; editing by

Amanda Cooper, Ed Osmond and Alex Richardson)