Pound rises after Bank rate cut

By Tamawa Desai

LONDON (Reuters) - Sterling rose to three-week highs against the dollar and euro on Thursday after the Bank of England cut key interest rates as widely anticipated, but at the low end of expectations.

The Bank cut the key bank rate by 50 basis points to a record low of 1.5 percent as it battles to keep the economy from falling into a deep slump, and experts say borrowing costs will fall again next month.

Many in the market had expected the central bank to cut rates by a bigger margin after it slashed interest rates by a full percentage point in December.

"It appears that the BoE has taken a cautious approach in cutting by 50 basis points. I think it will be slightly disappointing to the market," said Matthew Sharratt, economist at Bank of America.

By 3:05 p.m., sterling was up 0.8 percent on the day at $1.5230, holding well above $1.5040 which was the level shortly before the rate decision. It rose as high as $1.5372, helped by a broadly weaker dollar.

The euro fell to 88.94 pence on Reuters dealing system, its lowest since mid-December, before recovering to around 90 pence, the level seen before the Bank's rate decision.

"The consensus was for 50 basis points but the risk was for a bigger rate cut. So when they cut by 50 basis points, we saw buying in sterling," said Paul Robinson, chief sterling strategist at Barclays Capital in London.

The Bank said in its statement that a "substantial" decline in the pound was helping to offset the impact of a slower global economy and would act as a stimulus going forward.