Sterling rises as BoE keeps rates steady

By Sophie Kiderlin

LONDON, March 19 (Reuters) - Sterling rose on Thursday as the Bank of England left interest rates unchanged, with investors looking for clues from policymakers about the impact of the Iran war.

The central bank's Monetary Policy Committee voted unanimously to keep borrowing costs on hold, with some noting the prospect of raising rates.

"After months of division, the Committee is now more united in holding rates steady, voting a unanimous 9-0 versus February's tight 5-4 split," Madison Faller, global investment strategist at JPMorgan Private Bank, said in a note.

"Policymakers have converged on controlled caution. The question is how long the economy can afford to wait. In turn, a dovish BoE stance is likely to keep a lid on sterling gains, especially if investors continue to seek out the dollar as a safe haven."

The pound was last 0.32% higher against the dollar at $1.3297, extending an earlier nudge higher. It hit its lowest level since early December last week.

The euro was last slightly lower against sterling at 0.8628 pence.

BOE'S DECISION WAS EXPECTED

The BoE's decision was widely expected. Markets had been pricing in a rate cut until recently, however the oil price spike brought on by the Iran war has created widespread uncertainty, stoking inflation fears and leading to shifts in policy expectations.

The MPC said inflation could rise to as high as 3.5% over the next two calendar quarters, according to BoE staff forecasts, and that it was alert to the risk of higher inflation expectations getting embedded in the economy.

It also nodded to the risks of an economic slowdown which could weaken inflation pressures but said the bigger risk was one of higher inflation.

The BoE's decision is one of many in a short period, with the Federal Reserve and the Bank of Japan both having left rates unchanged - as expected - and the ECB also set to announce its latest policy decision on Thursday.

Data published earlier on Thursday showed that British wages, excluding bonuses, rose at their slowest pace since late 2020 in the three months to January. The figures also suggested a weakening in employment might have bottomed out.

"With unemployment staying steady at 5.2% and a rare gain in payrolls employment, this report paints a mildly more positive picture of the labour market," Luke Bartholomew, deputy chief economist at Aberdeen, said in a note.

"And with wage growth softer again, in normal times this would have been a relatively reassuring report for the Bank of England. But the report feels stale in light of the Iran conflict, and the inflation risks stemming from the large spike in energy price."

(Reporting by Sophie Kiderlin, editing by Alexandra Hudson)