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LONDON, June 20 (Reuters) - The Bank of England kept interest rates steady at a 16-year high of 5.25% on Thursday ahead of a July 4 election, but some policymakers said their decision not to cut rates was now "finely balanced".

MARKET REACTION:

FOREX: Sterling dipped after the decision.

It was last down 0.24% on the day at $1.2689 compared to $1.2706 and traded at 84.56 pence per euro, a touch softer on the day.

STOCKS: The blue-chip FTSE 100 rallied and was last up 0.38%. The mid-cap FTSE 250, which is more exposed to the domestic British economy, was also up around the same amount having been 0.16% higher just before the rate decision.

FIXED INCOME: Benchmark 10-year gilt yields fell and were last down 2.2 basis points on the day at 4.05%, หวย having traded around 4.07% earlier.

Money markets showed traders were pricing in 50 bps worth of cuts by end-2024, compared with 45 bps' worth prior to the decision.

COMMENTS:

NEIL JONES, SENIOR FX SALES TO FINANCIAL INSTITUTIONS, TJM EUROPE, LONDON:

"A 7-2 hold vote is no surprise, but this is clearly a dovish hold. The narrative from Bailey suggests for some, they are close to cutting."

"The pound is trading lower on the 'finely balanced' comment."

"August is now down to the wire. A 5-4 cut vote is back in play."

MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON:

"The Bank of England's Monetary Policy Committee sprang no surprises with today's decision to hold Bank Rate steady for the seventh straight meeting, with such a decision having been fully discounted by money markets prior to its announcement.

"The unchanged split 7-2 vote, with (Swati) Dhingra and (Dave) Ramsden again favouring an immediate 25-bp rate cut, also came as little surprise, with information since the May meeting having given policymakers little reason to significantly alter their stance over the last six weeks.

"Reflecting this, the accompanying policy statement - unsurprisingly - was largely a 'carbon copy' of that released after the aforementioned May meeting. It was, however, noteworthy that the decision not to cut was described as "finely balanced" for some members of the Committee, heightening the chances of a cut next time around."

ANDREW SUMMERS, CHIEF INVESTMENT OFFICER AT OMNIS INVESTMENTS, LONDON:

"We didn´t expect the Bank to reduce interest rates today."

"This year´s upside surprises to inflation have been too many and yesterday's print probably marks the low for this year, so the Bank will want to see further evidence that inflation has indeed been tamed. This is likely to come in the form of temperance in service sector and wage inflation, which we do expect will begin to emerge soon. Rate cuts are on the horizon, beginning possibly in August but probably by November."

LINDSAY JAMES, INVESTMENT STRATEGIST, QUILTER INVESTORS, LONDON:

"Though inflation hitting 2% marked a significant milestone, it is simply not enough to allow the Bank of England to declare 'job done'. This decision is no real surprise given month-on-month figures suggest inflation is unlikely to remain at 2% for long. It is, instead, expected to rise again later this year and ultimately settle between 2% and 3%."

(Reporting by EMEA Markets Team; Compiled by Dhara Ranasinghe; Editing by Amanda Cooper)