July 30 (Reuters) - UK bond yields and the pound fell

slightly on Thursday after the Bank of England held interest

rates at 3.75% as expected and said domestic conditions were

likely reducing inflationary pressures.

Britain's two-year government bond yield, which is sensitive

to BoE rate expectations, slightly extended its earlier fall to

trade 7 basis points lower at around 4.38%.

Sterling was last up 0.1% at $1.339, down very

slightly from before the decision.

Six of the Bank's Monetary Policy Committee voted to hold

rates, with three officials voting for a hike, one more than

economists polled by Reuters had expected.

In updated forecasts, the BoE's central projection showed

inflation rising to 3.2% later this year from a 15-month low of

2.6% in June.

That is a softer inflation outlook than in the Bank's last

full forecasts in April, but similar to what it predicted in

June.

"For now, the Bank is not seeing enough to abandon its

wait-and-see approach," said Schroders senior economist George

Brown.

"Despite the sharp rise in energy prices, the majority

appear unconvinced this will translate into more persistent

domestic inflation."

London's FTSE 100 stock index, which hit a record

high earlier on Thursday, was last up 0.2%.