LONDON (Reuters) - The Bank of England cut interest rates on Thursday for the first time in two years, cheering financiers and homeowners but raising the suspicion it may have caved into pressure.

With markets overwhelmingly positioned for a cut, a steady rate verdict -- seen as the most likely scenario by economists polled last week -- risked sending stock and bond prices into freefall.

Rocking the boat in already choppy waters is not something Bank policymakers would have relished. Nor would it have endeared Governor Mervyn King to a government which must soon decide whether or not to let him serve a second term.

So did the markets have the Bank over a barrel?.

"With 80 percent of the cut priced into the market the Bank would have been aware of the risks of not delivering, especially in light of current market tensions," said George Buckley at Deutsche Bank.

"Their responsiveness means they are likely to cut rates a little further than we thought."

Until recently, the vast majority of economists thought the Bank would keep interest rates on hold until early 2008 for fear of stoking inflation.

Rate-cut speculation gathered pace this week as investors took heart from a surprise interest rate cut in Canada and a run of dismal economic indicators.

Dec 6, 2007