Vermote (Etixx QuickStep) rider was among the survivors of a 15-rider breakaway on the 188km stage from Carlisle and was joined by Dimension Data man Stephen Cummings, who had broken away on the climb of The Struggle, and was an aggressive presence throughout the run into Kendal.
"I knew once the break it had gone it would be very difficult to catch us or if they did catch us they would have wasted a lot of energy as well,” Vermote said.
"Once I saw Cummings coming back I knew I had to stay in his wheel because once he gets a little gap he's gone. We had good co-operation between us but I'm really glad I could take the Stage win.”
After starting in clear conditions in front of large crowds in Carlisle, the first half of the stage was run off in sunny conditions, with the strong 15-rider lead group containing overnight leader and Stage 1 winner Andre Greipel (Lotto-Soudal), Nicolas Roche (Sky) and Vermote.
Once through Keswick and over the second climb of Chestnut Hill the rain and mist set in with the much anticipated climb of The Struggle out of Ambleside proving decisive.
Dimension Data's Mark Cavendish led the peloton onto The Struggle, just over a minute and a half down on the fracturing front group as Vermote and Roche went clear from the break with Xandro Meurisse (Wanty-Groupe Gobert), Bert-Jan Lindemann (LottoNL-Jumbo) and Trek Segafredo stagiare Jacopo Mosca.
First to bridge across was Australian Rohan Dennis (BMC), making six in front on the descent, with a chase group of ten led by Cummings and Ben Swift (Sky) behind. Under pressure from Cummings and Tony Gallopin (Lotto-Soudal) that group dissolved, with Cummings going on to make it across.
Cummings then launched several hard efforts, with Vermote the only rider able to follow. The pair built a 40-second gap as they approached 5km to go, the majority of that work done by Cummings.
With Cummings leading up the climb, Vermote surged past on the outside as the gradient eased going into the final 200 metres, crossing the line with a two second advantage over Cummings, good enough for a six second lead overnight going into Stage 3 in Cheshire.
The win was Vermote's first since his victory in Brighton during the 2014 Tour of Britain, when he won alone at the end of another arduous stage.
"I asked the team to come here, I knew it wasn't originally in the programme but I knew there would be some opportunities,” Vermote said.
"It's an open race with only six riders per team so that makes it different to all the other races. It's a really tough race though, small roads and up and down all day but I'm just really happy I took my chance.”
Behind Vermote on the general classification is Cummings at six seconds, with Dan Martin (Etixx-QuickStep) third at just over a minute, before Meurisse, Swift and Gallopin all a further four seconds in arrears.
Stage 1 winner Andre Greipel (Lotto-Soudal) moved into the sprints jersey after taking a clean sweep of the three intermediate sprints, and Wanty Group Gobert's Meurisse took the mountains classification lead.