By Andy Bruce and David Milliken

LONDON (Reuters) -The Bank of England held interest rates at 5.0% on Thursday and voted to run down its stock of British government bonds by another 100 billion pounds ($133 billion) over the coming 12 months, a move that could weigh on the government's finances.

The Monetary Policy Committee voted 8-1 to keep rates on hold. Only external member Swati Dhingra voted for a further quarter-point rate cut after the BoE last month delivered its first reduction to borrowing costs since 2020.

Economists polled by Reuters had forecast a 7-2 vote to keep rates on hold after last month's tight 5-4 decision to cut rates from their previous 16-year high.

Sterling jumped above $1.33 on the back of the decision, the highest the currency has been since March 2022, and investors scaled back bets on further cuts in Bank Rate for the remainder of the year.

On Wednesday, the U.S. Federal Reserve cut rates by 0.5 percentage points - a larger-than-expected move that reflected the Fed's confidence that inflation pressures were cooling.

The BoE struck a more cautious tone. Governor Andrew Bailey said cooling inflation pressure meant the BoE should be able to cut rates gradually over the months ahead.

"But it's vital that inflation stays low, so we need to be careful not to cut too fast or by too much," he said in a statement.

Investors think the British central bank will cut rates at a slower rate than the Fed over the next year, citing more persistent inflation pressure.

The BoE said inflation was likely to rise to around 2.5% by the year's end from 2.2% in the most recent data, compared with a previous forecast of around 2.75%. Lower oil prices contributed to the downgrade.

"The decision to keep base rates on hold aligns with our long-held view that the Bank will take a cautious approach to the start of the cutting cycle," said Dean Turner, chief European economist at UBS Global Wealth Management.

After Thursday's announcement, investors no longer fully priced two rate cuts by the end of 2024, as they had done earlier in the day. There was now a 2-in-3 chance of a cut in November which was previously seen as a foregone conclusion.

Financial markets now expect the BoE to cut rates in quarter-point moves four or five times by June. By contrast, they see around seven such cuts in the U.S., even after its outsized move on Wednesday.

QT CONTINUES

The MPC voted 9-0 to maintain the pace of its quantitative tightening programme in the 12 months starting in October 2024.

QT represents the sale of hundreds of billions of pounds of British government bonds purchased in past attempts to stimulate the economy, by letting these gilts mature but also through active sales.