Sterling slightly reduced its losses on Thursday after the Bank of England maintained interest rates at 4.5% as anticipated, indicating a wait-and-see approach to assess the impact of US tariffs on the global economy.

The Monetary Policy Committee voted 8-1 in favour of keeping rates unchanged, with only external member Swati Dhingra supporting a quarter-point cut.

A Reuters poll of economists had largely predicted a 7-2 vote to maintain the current rate.

“The Bank of England's decision to hold rates steady, with a vote split of 8-1, was a slightly more hawkish vote split than many assumed, but no change to rates is in line with expectations,” said Dean Turner, chief euro zone economist, UBS Global Wealth Management, London.

“As noted in the minutes, policy uncertainty remains high, with a particular nod given to 'global trade policy uncertainty'. Although news flow on the domestic economy hasn’t provided much new news for policymakers, next week's Spring Statement is likely to see the Chancellor announce spending cuts, which may weigh on the economy,” he added.

Sterling pared back some of its earlier losses and was last down approximately 0.3% at $1.2963 at the time of writing, having traded at $1.2959 just before the rate decision.

Meanwhile, London’s blue-chip FTSE 100 index extended its decline, dropping 0.3%, Reuters reports.

In bond markets, the yield on the rate-sensitive two-year gilt fell 3.3 basis points on the day to 4.17%, compared to 4.15% just before the Bank of England's announcement.

“The Bank of England is stuck between a rock and a hard place, with inflationary pressures mounting alongside a weak growth outlook. While it may have been tempting for the Bank to cut rates today, ultimately the decision to hold was appropriate,” stated Zara Nokes, global market analyst, JP Morgan Asset Management.

Investors are now shifting their attention to Chancellor Rachel Reeves' upcoming spring statement next week, where she is expected to announce spending cuts aimed at keeping the government within its fiscal rules while reassuring cautious bond investors.