The Bank of England left the bank rate at 4.50% on Thursday and warned of risks to inflation, partly resulting from external factors such as U.S. trade tariffs. It flagged likely gradual cuts to interest rates over the coming months as the U.K.'s economy remains weak. The next reduction could come as earlier as May, analysts say. The following is a selection of analyst comments.

Declining U.K. Pay Growth Should Support a BOE Rate Cut in May

1528 GMT - U.K. pay growth is likely to fall considerably, raising the likelihood of an interest-rate cut in May, Morgan Stanley analysts say in a note. Markets currently price in a 47% chance of a May rate cut after the BOE left interest rates on hold in a decision Thursday, LSEG data show. Most members of the BOE's monetary policy committee probably consider that interest rates are restrictive given that the meeting minutes "noted weakness in rate-sensitive sectors of the economy," Morgan Stanley says. "We assume that barring major upside surprises in the pay and inflation data, rates will be cut in May again." (miriam.mukuru@wsj.com)

More Than Two More U.K. Rate Cuts This Year Could Hit Sterling

1513 GMT - The Bank of England could cut interest rates by more than markets expect this year, potentially hitting sterling in the long run, Monex Europe's Nick Rees says in a note. "We continue to expect further cuts to the Bank Rate in May, August, and November." This is slightly more aggressive than market pricing implies, although it's likely to be longer-term sterling headwind rather than an immediate concern, he says. The market is pricing in a further 48 basis points of rate cuts this year, roughly equating to two cuts, according to LSEG. The focus now turns to the March 26 U.K. budget and this could disappoint markets, he says. The BOE voted 8-1 to hold rates steady Thursday. (renae.dyer@wsj.com)

BOE's Gradual Approach to Rate Cuts Should Benefit Sterling

1503 GMT - The Bank of England's decision to maintain a gradual approach to interest-rate cuts is positive for sterling's outlook, says Ivo Mertens, economist at cross-border payments group iBanFirst. The BOE is playing it safe amid global uncertainties and its priority is price stability, he says. "Minimising volatility is key to driving growth, particularly for businesses trading across borders." With fears over a U.S. recession mounting, sterling is more resilient to U.S. tariff threats than the euro, Mertens says, The BOE's decision increases market confidence, making sterling an "attractive and safe bet for investors." The BOE voted 8-1 to leave rates at 4.5% Thursday. Sterling rises to a two-week high of 0.8350 per euro, FactSet data show. (renae.dyer@wsj.com)

Sterling Remains Driven by External Factors Even After Slight Boost From BOE

1345 GMT - The Bank of England's 8-1 vote to keep interest rates unchanged gives sterling a modest lift but the currency remains largely driven by external factors, TD Securities strategists say in a note. The fact that just one policymaker voted in favor of a rate cut is helping sterling at the margin but this is "nothing too big or surprising." Sterling moves have been largely driven by global macroeconomic events recently, they say. Optimism over German and EU fiscal stimulus and worries about U.S. growth have weakened the dollar. However, sterling could suffer a pullback versus the dollar as the April 2 U.S. reciprocal tariff deadline approaches, they say. The euro falls to two-week low of 0.8360 pounds after the BOE decision, according to FactSet. (renae.dyer@wsj.com)

Signs of Persistent Inflation Leave BOE Cautious on Cutting Rates

1342 GMT - Worrying signs of U.K. inflation persistence warrant a cautious stance from the Bank of England on cutting interest rates for now, Pepperstone strategist Michael Brown says in a note. The central bank voted 8-1 to leave rates at 4.5% with just one policymaker favoring a rate cut. The BOE repeated its "gradual and careful" approach to rate cuts. Inflation remains considerably above the 2% target and consumer prices are expected to reach 3.75% in the third quarter, Brown says. He expects the BOE to deliver one 25 basis-point rate cut per quarter. However, it could increase the pace of rate reductions if the labor market weakens significantly and lowers sticky services prices, he says. (renae.dyer@wsj.com)

BOE Will Want to See Wage Growth Easing Before Further Rate Cuts

1317 GMT - The accompanying minutes to the Bank of England's decision to keep rates at 4.50% on Thursday suggested that pay growth will remain key to future decisions, says Jessica Hinds, director in Fitch Ratings. Wage growth remains elevated, with average earnings excluding bonuses rising 5.9% on year in January. "Committee members will presumably want to see falls in wage growth from current high levels before reducing the restrictiveness of monetary policy," Hinds says. She pencils three further rate cuts this year, including one at the next meeting in May, which will come alongside fresh growth and inflation forecasts. (edward.frankl@wsj.com)

U.K. Labor Market Data Supports BOE's Caution on Rate Cuts

1301 GMT - Data earlier Thursday showed the U.K. labor market remains resilient, supporting the Bank of England's decision to keep interest rates on hold and indicate a cautious pace of rate cuts ahead, Bank of America analysts say in a note. In its statement accompanying the decision, the BOE said a "gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate." BofA expects the next BOE rate cut will likely to be in May, followed by another two reductions later in 2025. "We expect a modest easing of the labor market," the analysts say. The data showed U.K. weekly pay excluding bonuses stayed high at 5.9% in the three months to January while unemployment remained at 4.4%. (miriam.mukuru@wsj.com)

BOE's Concerns Over Economy Keep Door Open for May Cut

1251 GMT - While the Bank of England's vote to hold rates was nearly unanimous, with only one policymaker voting to cut rates, there was enough to suggest that the central bank remains concerned over the health of the economy, said Suren Thiru, ICAEW economics director. That keeps the door wide open for an interest-rate cut in May, he says in a note. The path ahead remains filled with uncertainty, suggesting rate setters will continue to maintain their slow and steady approach to loosening monetary policy, Thiru says in a note. The BOE kept its key interest rate at 4.5%. (edward.frankl@wsj.com)

BOE's Vote Split Surprises

1231 GMT - The Bank of England's decision to keep interest rates on hold was no surprise but the vote breakdown was striking, says Aberdeen's Luke Bartholomew in a note. Of the nine monetary policy committee members, only Swati Dhingra voted for a 25 basis-point cut, while Catherine Mann went from voting for a large 50 basis-point reduction last month to voting to hold rates this month. The BOE faces a very challenging economic environment, with growth having slowed but inflation pressures remaining elevated, the deputy chief economist says. "This will keep the Bank on its 'gradual and careful' cutting path for now, with another cut likely in May." (emese.bartha@wsj.com)

Gilt Yields Rise Slightly After BOE Keeps Interest Rates Unchanged at 4.50%

1226 GMT - Yields on U.K. government bonds, or gilts, rise slightly after the Bank of England kept interest rates on hold at 4.50%, as expected. Eight members of the BOE's monetary policy committee voted to hold rates while one member voted for a 25 basis-point cut. Most analysts had expected at least two votes to cut rates. "The BOE's decision to hold interest rates steady reflects the ongoing balancing act amid Trump-driven market uncertainty, tariff policies, and the U.K.'s upcoming tax changes," Daniel Austin, CEO at ASK Partners says in a note. The 10-year gilt yield rises to 4.581% following the rate decision, from 4.566% prior. It remains 5 basis points lower on the day, however, Tradeweb data show. (miriam.mukuru@wsj.com)

BOE's Caution Is Justified

1221 GMT - In the face of vast uncertainty bearing down on the U.K. economy's outlook, Bank of England rate-setters have rightly chosen to tread cautiously, says Raymond James Investment Services' Jeremy Batstone-Carr in a note. "The Bank's rate setters are trapped by dual pressures of boosting the economy while still keeping the base rate sufficiently restrictive so as to curb inflation," the European strategist says. This comes amid forecasts that CPI inflation is expected to increase to 3.7% later this year, with further factors driving price pressures in the short term. "The Bank's reaffirmed commitment to tread carefully reflects the careful balance needed." (emese.bartha@wsj.com)

Bank of England's Halt Offers Little Cheer to Business

1216 GMT - The Bank of England had little choice but to hold interest rates in place on Thursday but the decision won't help already shaky business confidence, MHA economic adviser Joe Nellis says. The bank's monetary-policy committee held its key rate at 4.5% after cutting rates in February, which had been widely expected by investors. The committee had little option since growing global trade uncertainty is set to add to inflationary pressures in the U.K., Nellis says in a note. Still, the U.K. economy is flatlining and business confidence is weak. "And this halt will not help," he says. (joshua.kirby@wsj.com; @joshualeokirby)

Sterling Rises to 2-Week High Against Euro After BOE Holds Rates Steady

1215 GMT - Sterling rises to a two-week high against the euro and trims losses versus the dollar after the Bank of England voted 8-1 to leave interest rates at 4.5%. One policymaker preferred to cut rates by 25 basis points. While a decision to hold rates was widely expected, some analysts had anticipated more policymakers would favor a rate cut. The BOE reiterated a "gradual and careful" approach to cutting rates is appropriate. "The BOE will wish to avoid cutting rates too much too quickly for fear of causing further inflationary pressure," Quilter strategist Lindsay James says in a note. The euro falls to a low of 0.8363 pounds after the decision, from 0.8377 beforehand. Sterling rises to $1.2979, from 1.2958 previously.(renae.dyer@wsj.com)

(END) Dow Jones Newswires

March 20, 2025 11:35 ET (15:35 GMT)

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