BoE chief economist boosts chance of August hike with vote for rate rise

* BoE (Shenzhen: 000725.SZ - news) policymakers vote 6-3 to keep rates at 0.5 pct

* Sterling gains on chance of August move

* Chief (Taiwan OTC: 3345.TWO - news) economist Haldane unexpectedly joins rate hike camp

* MPC says economy "broadly on track" for Q2 pick-up

* BoE says will not reverse QE before rates reach 1.5 pct

(Updates with Carney speech, paragraphs 20-22)

By David Milliken and Alistair Smout

LONDON, June 21 (Reuters) - The Bank of England bolstered

expectations that at its next meeting it will raise rates for

only the second time in a decade, after its chief economist

unexpectedly joined the minority of policymakers voting for a

hike on Thursday.

The central bank also gave new guidance on when it might

start to sell its 435 billion pounds ($574 billion) of British

government bonds, saying this could come once rates have reached

around 1.5 percent, compared with previous guidance of 2

percent.

Sterling rallied against the dollar on the news, heading for

its biggest daily gain in two months. Short-dated bond yields

jumped as markets priced in higher BoE rates.

"The likely timing of the next hike is less finely balanced

than the markets expected. The surprising switch by BoE Chief

Economist (Andy) Haldane to support an immediate rate hike puts

August firmly on the table," Lloyds economist Jeavon Lolay said.

The BoE's Monetary Policy Committee voted 6-3 to keep rates

at 0.5 percent, where they have been for most of the past

decade, against widespread expectations in a Reuters poll for

another 7-2 split.

The BoE raised rates in November for the first time since

the financial crisis, and the central bank had looked ready for

another increase in May, until the economy slowed in the first

three months of 2018, due partly to bad weather.

Before Thursday's statement, most economists polled by

Reuters expected rates to rise in August, but markets priced in

a chance of under 50 percent and a majority of the public did

not expect rates to rise at all this year.

Now (Frankfurt: 11N.F - news) , interest rate futures price in a two-thirds chance of

an August rate rise, Societe Generale (Swiss: 519928.SW - news) analyst Jason Simpson

said.

Tightening in Britain, which leaves the European Union in

March 2019, remains far more limited than in the United States,

where the Federal Reserve plans to raise rates four times in

total this year and three times in 2019.

ECONOMY "ON TRACK"

On Thursday, the MPC said their judgment that economic

weakness would prove temporary appeared "broadly on track", and

BoE staff confirmed a forecast that growth would resume what it

sees as a sustainable rate of 0.4 percent in the second quarter.

Household spending and sentiment had bounced back strongly,

and a sharp fall in factory output in April could reflect firms

running down excess inventory which built up in the period of

bad weather in the first quarter, the BoE said.

With (Other OTC: WWTH - news) unemployment at its lowest since 1975, the BoE says the

economy is near full capacity, and interest rates will likely

rise in a gradual and limited way over the next two to three

years to curb inflation.

Haldane and the two other policymakers who voted to raise

rates to 0.75 percent said recent wage deals and strong demand

for workers raised the prospect of wages rising faster than the

BoE forecast, and there was no reason to wait.

However, many economists remained wary about the chances of

an August rate rise, burnt after the apparent certainty of a May

rate rise evaporated in the space of a few days in April,

following weak data and dovish remarks by BoE Governor Mark

Carney.

"The MPC has repeatedly talked up the chances of rate hikes,

only to disappoint when all the data don't fall into place. We

still struggle to see how the data will warrant a hike in

August," said Samuel Tombs of Pantheon Macroeconomics.

At the end of last year Britain's was the slowest-growing

economy among the G7 group of rich nations, as businesses held

back from investing ahead of Brexit and high inflation triggered

by the 2016 referendum eroded households' disposable incomes.

Inflation has fallen slightly faster than expected from a

five-year high of 3.1 percent in November, though the BoE said

on Thursday it expected it to rise in the short term due to a

weaker pound and higher oil prices.

Haldane has a reputation for wide-ranging interests and

thinking that does not always represent the mainstream at the

BoE, so it remains to be seen if other BoE officials follow his

lead on monetary policy.

Bank of England Governor Carney made no direct reference to

the outlook for the economy or interest rates in a speech

focused on financial services in London on Thursday evening.

But he did endorse the MPC's new guidance on how long it

will wait before reversing past asset purchases.

"Any reductions in the stock of purchased assets will be

conducted over a number of years at a gradual and predictable

pace," said Carney.

(Additional reporting by Andy Bruce; Writing by David Milliken

Editing by Andrew Roche/Mark Heinrich)