LONDON, June 22 (Reuters) - The Bank of England raised interest rates by a bigger-than-expected half a percentage point on Thursday after it said there had been "significant" news suggesting British inflation would take longer to fall.

The BoE's Monetary Policy Committee (MPC) voted 7-2 to raise its main interest rate to 5% from 4.5%, its highest since 2008 and its largest rate increase since February, following stickier inflation and wage growth since policymakers last met in May.

Gilt yields wobbled and the pound jumped briefly before retreating, as traders scrambled to price in a peak to UK rates of as much 6%, while rate-sensitive stocks like banks and homebuilders slid.

MARKET REACTION:

FOREX: Sterling was last flat after the decision, having pared gains versus the dollar to trade at $1.27725.

STOCKS: The FTSE 100 was down 1.1% on the day, compared with a loss of 0.9% prior to the decision.

MONEY MARKETS: UK 2-year gilts dropped sharply after the decision but were last up 5 bps to 5.09%.

COMMENTS:

Chris Beauchamp, Chief Market Analyst, IG Group, London:

"The BoE has come down on the side of a 50 bps hike, in a move that seems to set the tone for the next few meetings. The fight against inflation clearly has to step up a gear, and the task now for the BoE is to get ahead of the curve once again. A nod to 'persistent inflation' should put everyone on notice that Bailey and co have overcome their reticence about more aggressive hiking."

PAUL OBERSCHNEIDER, CEO, HILLTOP CREDIT PARTNERS, LONDON:

“The BOE continues to get it very wrong. Raising the cost of money when growth is at virtually zero, and inflation is being caused by factors outside of consumption control, is a recipe for disaster. The focus should be on addressing the underlying causes of today’s inflation, including a lack of housing supply caused by a broken planning system and out of date mortgage products, and fiscal measures that don’t cause more consumer pain. The UK economy is precariously positioned, with real-term UK wages at 2005 levels and the impact of the government’s 400 billion-pound COVID bailout now finally catching up with the Treasury.”

ROBERT JEFFREE, CHIEF EXECUTIVE OF OMNIS INVESTMENTS, LONDON:

“After May’s hot inflation report, the Bank of England faced a dilemma when it came to its interest rate decision today. They can’t risk letting inflation expectations get higher and the worrisome acceleration of prices in the service sector risks just that, even if goods prices are falling."

"Having said that, their policy is now more data dependent, the bank had to deliver a rate increase. A greater step change – 50 bp rather than 25 bp suggests a more discernible hawkish tilt which is bad news for borrowers and good news for savers.”

GARY SMITH, PARTNER IN FINANCIAL PLANNING, EVELYN PARTNERS, LONDON:

“Expect more mortgage market mayhem after this big bazooka rate hike. Lenders were probably already pricing in a 25 basis point move, but the repricing of home loans looks like it will now be more dramatic and protracted."

"With the benchmark interest rate undergoing a step-change to a level not seen since September 2008, the coming weeks are likely to see a procession of raised loan rates – and a succession of eye-watering estimates of how much monthly and annual loan payments will increase as borrowers come off their cheap fixed deals." (Reporting by EMEA Markets Team; Editing by Yoruk Bahceli)