* BoE keeps rates on hold, no change in asset purchase plan
* No statement from policymakers
* Speculation grows that Bank will tweak guidance plan
By William Schomberg and David Milliken
LONDON, Jan 9 The Bank of England kept investors
guessing on Thursday as to whether it might be considering a
change to its pledge to keep interest rates on hold as Britain's
economic recovery picks up.
The BoE left monetary policy unchanged after its Jan. 8-9
rate-setting meeting, sticking to its plan to hold borrowing
costs at a record low until the country's surprisingly fast
economic turnaround broadens out.
It also did not take the unusual step - but one which some
investors had considered possible - of issuing a statement to
address the speed at which Britain's unemployment rate is
falling towards its threshold for considering a rate hike.
"No guidance on guidance yet," Investec economist Philip
Shaw said in a note to clients. He said details of discussions
among the BoE's policymakers on their options for changing
guidance were likely to appear when minutes of this week's
meeting are published on Jan. 22.
Britain moved from being a laggard to a leader in terms of
growth among the world's biggest economies last year.
Its economy is expanding by more than 3 percent in
annualised terms although there are concerns the recovery could
prove unsustainable, especially as wage growth remains weak.
The BoE said in August it will not think about raising rates
until unemployment falls to 7 percent. Since then unemployment
has come down much faster than the Bank expected, raising
questions about how long it can hold off on raising rates.
But inflation has also fallen to within a whisker of its 2
percent target, reducing the pressure on the BoE.
After its two-day meeting, the Bank's Monetary Policy
Committee kept interest rates at 0.5 percent, as expected by all
the economists who took part in a Reuters poll.
It also left its bond-buying programme unchanged at 375
billion pounds ($618 billion).
The turnaround in Britain's economy contrasts with the
situation in the euro zone, its main trading partner, where the
European Central Bank is expected to use a news conference on
Thursday to remind investors it could ease policy further.
The pace of Britain's recovery has helped the pound to
strengthen by 5 percent against the euro and 10
percent against the dollar since the middle of last year.
Sterling strengthened briefly against the dollar after the
MPC's announcement of no change in policy. British government
bond prices rose slightly.
KEEPING EXPECTATIONS IN CHECK
Governor Mark Carney has sought to dampen speculation about
an early rate rise, stressing how Britain's economy remains 2
percent smaller than before the financial crisis, unlike many
other industrialised nations which are now bigger than in 2008.
He and other policymakers have said repeatedly that the 7
percent threshold is not an automatic trigger for a rate hike.
But with unemployment falling to 7.4 percent at its most
recent reading and expected to drop further in coming months,
some economists say the BoE will have to tweak its guidance on
when it will start to consider raising interest rates.
In a Reuters poll published last week, 13 of 41 economists
said the BoE would need to lower its 7 percent jobless rate
threshold, mirroring a move taken the U.S. Federal Reserve.
Economists say the MPC might choose to change or scrap the
guidance plan as soon as next month. It is due to hold its next
policy meeting on Feb. 6 and publish a quarterly inflation
report and hold a news conference on Feb. 12.
Rob Wood, a former BoE economist, said the time had come to
"They should certainly not lower the unemployment threshold,
which would just make a mockery of the guidance policy," said
Wood, who works at Berenberg bank. "What is the point of giving
guidance if the BoE can shift the goal-posts whenever it likes?"
Britain's fast-recovering housing market has added to the
speculation that the BoE might have to tighten monetary policy
sooner than it originally intended.
But Carney has stressed that the Bank has a range of tools
it can use to tackle the risk of a property bubble, such as
curbs on mortgage lending, without resorting to the "blunt
instrument" of raising interest rates.
Data published earlier on Thursday showed the trade deficit,
another weak point of Britain's recovery, barely narrowed in
November although exports to its main trading partners in the
euro zone picked up.