Bank of England sees weakest UK outlook since 2009 on Brexit, global slowdown

* BoE (Shenzhen: 000725.SZ - news) policymakers vote 9-0 to keep rates at 0.75 pct

* Makes biggest cut to growth view since 2016 Brexit vote

* Sterling falls on outlook, recovers on Carney remarks

* Carney says Brexit uncertainty remains deep

(Adds JP Morgan economist comment)

By William Schomberg and David Milliken

LONDON, Feb 7 (Reuters) - The Bank of England said Britain

faces its weakest economic growth in a decade this year as

uncertainty over Brexit mounts and the global economy slows, but

interest rates will eventually rise if an EU divorce deal is

done.

While other major central banks have signalled they will

hold off from raising borrowing costs, the BoE kept its message

that gradual and limited rate rises lie ahead for Britain as

long as, in just 50 days' time, a no-deal Brexit is averted.

BoE Governor Mark Carney said "the fog of Brexit" was

causing tensions in the economy and that the risk of an abrupt,

damaging departure from the European Union was growing.

"There are still as almost as a wide of range of

possibilities as there were the morning after the referendum,"

Carney said after the Bank's policymakers voted unanimously to

keep rates at 0.75 percent, as expected.

Britain, the world's fifth-biggest economy, is due to leave

the bloc on March 29 but Prime Minister Theresa May wants more

concessions from Brussels to rally her divided Conservative

Party behind her exit plan, which parliament voted down last

month.

Carney told reporters "not everything may be tied up in a

nice package" by Brexit day.

Sterling initially fell a quarter of a cent against the

dollar, touching a two-week low, but was up on the day after

Carney mentioned the probability of an economic pick-up if a

Brexit deal is done.

Interest rate futures indicated investors slightly scaled

back their expectations for a rate hike this year.

JP Morgan economist Allan Monks said he now expected a first

BoE rate increase in August, or possibly later, rather than May.

"The report sends a clear message the BoE is unlikely to raise

rates in the coming months," he said.

The central bank on Thursday slashed its 2019 economic

growth forecast to 1.2 percent from a previous estimate of 1.7

percent made as recently as November. That was the biggest

forecast cut since immediately after the 2016 Brexit referendum.

Some economists read the forecasts as showing as much as a

one-in-four chance of a recession this year, although they also

showed a similar chance of growth above 2 percent, underscoring

the uncertainty of the economic outlook.

The BoE sees business investment and housebuilding falling

this year and a halving of the growth rate in exports.

For 2020, the BoE also lowered its overall growth outlook to

1.5 percent from 1.7 percent, before a

stronger-than-previously-expected 1.9 percent in 2021.

The downgraded growth expectations coincided with the Bank

acknowledging that investors had scaled back their expectations

on how much interest rates were likely to rise.

The BoE said that in the run-up to Thursday's announcement,

markets were pricing in its Bank Rate reaching 1.1 percent by

the end of 2021, compared with 1.4 percent at the time of its

last forecasts in November.

Howard Archer, an economist with consultants EY Item Club,

said this implied two quarter-point rate rises over the next two

years, compared with three expected in November.

Rate rises would run counter to moves by other central

banks.

Last week the U.S. Federal Reserve signalled an end to its

three-year run of hikes. Earlier on Thursday, India's central

bank cut borrowing costs while weak German industrial output

numbers raised concerns that Europe's biggest economy might be

heading for a recession.

INFLATION STILL ABOVE TARGET

The BoE sent a reminder to investors that rates might rise

more quickly than they expect by saying it saw inflation in two

years' time at 2.1 percent, a touch above its 2 percent target.

The main reason the BoE thinks underlying inflation

pressures will build is faster wage growth after Britain's

unemployment rate hit its lowest level in more than 40 years.

The BoE's wage forecasts were little changed with earnings

rising by more than 3 percent a year over the next three years.

But the bigger picture remains weak. Private-sector business

surveys have suggested the economy has slowed to a crawl and the

BoE said on Thursday that half of the businesses it surveyed had

begun to prepare for a no-deal Brexit.

It repeated its message that it could either cut or raise

interest rates after a no-deal Brexit. Many economists think it

would opt to help the economy with more stimulus, as it did

after the referendum shock of 2016.

(Additional reporting by Andy Bruce; Editing by Angus MacSwan)