By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- After a volatile trading day, U.K. stocks closed slightly higher on Thursday, with banks leading the advance after the Bank of England left monetary policy unchanged as expected.

The benchmark index moved 0.1% higher to close at 6,641.97, building on a 0.7% advance from Wednesday.

The main event in London on Thursday was the Bank of England's decision to keep the size of its bond-buying program unchanged and hold its key lending rate at a record low of 0.5%, where it has stood since March 2009. The central bank's Monetary Policy Committee maintained its asset purchases, the centerpiece of its quantitative-easing strategy, at 375 billion pounds ($629 billion).

The decision to stand pat was widely expected by economists, as the U.K. unemployment rate is still above 7% and inflation is running below the BOE target of 2%. Longer term, economists were more unsure, however, as to when the central bank will introduce its first rate hike.

Philip Shaw, chief economist at Investec Securities, said he doesn't expect the central bank to raise rates until the third quarter of 2015, but Rob Wood, chief U.K. economist at Berenberg, forecast a change much sooner.

"The U.K. recovery has much more momentum that the BOE thinks, so they will need to hike interest rates within the next 12 months, in our view," Wood said in a note.

The pound (GBPUSD) dropped after the policy decision, trading at $1.6776, down from around $1.6789 just before the BOE decision.

Among stock movers, banks helped lift the London benchmark. Shares of sector heavyweight HSBC Holdings PLC (HSBC) rose 1% and Barclays PLC (BCS) picked up 0.5%.

On a more downbeat note, mining firms declined after downbeat trade data from China renewed concerns about the health of the second-largest economy and global demand. Exports fell 6.6% from a year earlier, slower than the more-than-18% tumble in the previous month, but widely missing a Dow Jones-survey consensus for a 4.2% gain. Shares of Antofagasta PLC lost 2.2%, Anglo American PLC dropped 0.6% and BHP Billiton PLC (BHP) slipped 0.6%.

Shares of Marks and Spencer Group PLC lost 3.1%, erasing an earlier gain, as investors analyzed the retailer's fourth-quarter trading statement. Sales rose 1.9% in the quarter, but the details of the report revealed that the general-merchandise business is struggling. M&S also said it remains cautious about the outlook.

Shares of Royal Mail PLC dropped 1.6% after news on Wednesday that Ofcom will investigate the delivery and logistics company following a complaint from rival TNT Express NV .

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