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Bank of England to keep rates steady, despite Brexit delay

David Milliken

* BoE gives policy decision and updates forecast on Thursday

* Few economists see rate rise until UK's Brexit path is clear

* Growth outlook seen slightly stronger than in Feb

* Dovish market bets may prompt limited BoE push-back

LONDON, May 2 (Reuters) - The Bank of England looks set to leave interest rates on hold on Thursday and keep its options open for later in the year when it announces its first policy decision since the postponement of Britain's departure from the European Union.

Almost no economists polled by Reuters expect the BoE to raise rates from 0.75 percent until Britain has left the EU.

Last month, Prime Minister Theresa May secured a new Brexit deadline of Oct. 31 after she failed to get parliament to back her deal in time for the original March 29 departure date.

In some ways, Britain's economy looks ready for only its third interest rate hike since the global financial crisis.

Unemployment is at a 44-year low, wages are growing at the fastest pace in 10 years and spending by consumers has remained solid despite the Brexit uncertainty.

But there are reasons for caution, including the continued possibility that May could step down over the coming months, triggering a Conservative Party leadership contest, a national election or even a second Brexit referendum.

With the BoE unlikely to move now, its updated economic forecasts will be watched for any hint that it would consider raising rates before parliament agrees a Brexit deal.

Those forecasts are likely to show inflation will soon overshoot the central bank's 2 percent target, a signal from Governor Mark Carney and his fellow policymakers that investors are too relaxed about the prospect of a rate hike.

"Heading in to this week's BoE meeting we see more scope for a hawkish surprise than a dovish one," Bank of America Merrill Lynch interest rates strategist Sebastien Cross said in a note to clients.

Unlike the European Central Bank and the U.S. Federal Reserve, the BoE sees a case for ongoing policy tightening and limited and gradual rate rises. But financial markets only price in a 35 percent chance of a move this year, largely due to the Brexit uncertainty.

Britain, the world's fifth-largest economy, has seen growth stumble since the referendum decision in June 2016 to leave the EU, well before a global slowdown began last year.

Three months ago, the BoE downgraded its British economic growth forecast for 2019 to 1.2 percent, which would be the weakest since 2009. Some analysts now think that looks slightly too gloomy, despite a string of downbeat business surveys.

In March the BoE's Monetary Policy Committee said it was hard to judge if soft sentiment pointed to weakness ahead, or reflected temporary Brexit nerves like after the referendum.

The effect of Brexit uncertainty has been felt most on business investment, which contracted every quarter last year for the first time since 2009.

Carney warned last month that business uncertainty was "through the roof" and this was hurting productivity - something that also has potentially inflationary consequences. (Reporting by David Milliken; Editing by Alison Williams)