* BoE expected to keep rates at 0.5 percent
* Sterling at near five-year high vs dollar
* Policymakers to discuss new forecasts
By William Schomberg
LONDON, May 8 The Bank of England looks set to
keep interest rates at a record low on Thursday, despite signs
that the recovery is picking up more speed and that house prices
Britain is likely to grow faster than any other Group of
Seven economy this year and expectations are building that the
BoE might raise borrowing costs sooner than it has signalled.
The pound hit its highest level against the dollar in nearly
five years this week.
"I am starting to get twitchy," Scotiabank economist Alan
Clarke said. He has predicted a first rate hike in February next
year, but that was before private-sector surveys showed strong
growth and double-digit house price increases in April.
"If you get wages picking up, I think there is a good chance
you get a hike before Christmas," Clarke said.
Bets in markets are largely on a first increase in the first
quarter of 2015. The BoE hinted in February that the second
quarter of next year was the most likely timeframe.
Despite the speed of its turnaround, Britain's economy
remains a touch below its size before the 2008-09 recession,
according to the latest data. The BoE thinks the recovery can
continue without causing inflation pressure.
The two-day meeting of the Monetary Policy Committee is due
to end with a statement at 1100 GMT on Thursday.
It is the first meeting since unemployment fell below the 7
percent level set by the MPC last August as a threshold for
considering a rate hike. Mark Carney, who had just started as
BoE governor, pushed for the policy to counter speculation that
rates might go up quickly when the recovery kicked in.
But unemployment tumbled towards 7 percent far faster than
the Bank had predicted, forcing the MPC to announce a new phase
of its so-called forward guidance policy in February, linking
its thinking on rates to spare capacity in the economy.
The MPC is due to update its quarterly forecasts at this
week's meeting but will not publish them until next Wednesday.
Investors will be watching for the Bank's fresh assessment of
how quickly slack in the economy is being run down.
So far, the nine MPC members have remained united on the
need to leave interest rates at 0.5 percent, helped by a fall in
British inflation to its lowest level in more than four years.
Some senior policymakers have begun to express concern at
how quickly house prices are rising. A survey last week showed
they jumped by nearly 11 percent in annual terms in April,
though figures from the Royal Institution of Chartered Surveyors
on Thursday pointed to some signs that price rises were slowing.
But the BoE is stressing that it can deploy measures to
control mortgage lending as a first line of defence, rather than
raise interest rates.
Some economists, such as Rob Wood at Berenberg bank, think a
first MPC split could appear by late summer.
"Record low interest rates are no longer necessary," Wood
said in a note to clients on Tuesday, after a survey showed that
growth in April in Britain's dominant services sector was its
fastest in 2014 so far.
"The economy is growing rapidly and, if anything, is picking
up pace," Wood said.
None of 61 economists polled by Reuters last week expected
the Bank to change its benchmark interest rate on Thursday.
The BoE has said it would keep the stock of asset purchases
from its quantitative easing programme at 375 billion pounds
($628 billion) and would start to run it down only after it
starts raising rates.
(Editing by Andrew Roche)