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* BoE sees risks if negative rates used in under 6 months
* Sterling jumps as investors see less chance of sub-zero
rates
* A cut to zero would be less difficult - Woods
* BoE working on new guidance for easing stimulus
* UK economy seen shrinking by 4% in Q1
* 2021 growth forecast cut, 2022 estimate raised
(Adds quotes from news conference, updates market and analyst
reaction)
By Andy Bruce, David Milliken and William Schomberg
LONDON, Feb 4 (Reuters) - Britain's banks would need at
least six months to prepare for any cut in interest rates below
zero, the Bank of England said on Thursday as it kept its
stimulus programmes on hold ahead of what it hopes will be an
economic recovery later this year.
The pound jumped by more than a cent against the U.S. dollar
and 10-year British government bond yields
rose to their highest since March as investors heavily scaled
back bets the BoE would implement sub-zero rates this year.
The British central bank said it would ask banks to get
ready for the possibility of negative rates, but that financial
markets should not view sub-zero borrowing costs as a foregone
conclusion.
"Nobody should take any signal from this," Governor Andrew
Bailey told a news conference.
"My message to the markets is you really should not try to
read the future behaviour of the MPC from these decisions and
these actions we're taking on the toolbox."
Deputy Governor Sam Woods said most financial firms would
need to make changes to their systems to implement a negative
rate but cutting Bank Rate to zero would pose less of an
operational challenge.
Britain's economy would probably shrink by 4% in the first
three months of 2021, the central bank said, but it was expected
to recover rapidly towards pre-COVID levels over the year.
Most businesses are once again hobbled by Britain's third
national lockdown since the pandemic struck last year. The
coronavirus crisis has hit the economy harder than any of the
other Group of Seven rich nations, according to official data.
"With pent-up savings set to be unleashed later this year by
consumers looking to make up for lost time, the likelihood of
negative rates being implemented in the UK this year is
reducing," said Hugh Gimber, global market strategist at J.P.
Morgan Asset Management.
Many firms are also grappling with post-Brexit barriers to
trade with the European Union after Britain left the bloc's
single market on Dec. 31.
Bailey said risks to the medium-term economic outlook and
inflation had become more "two-sided".
RECOVERY PROSPECTS
The BoE maintained its Bank Rate at 0.1% and left the size
of its total asset purchase programme at 895 billion pounds
($1.22 trillion), as expected.
It lowered its forecast for British economic growth for this
year as a whole to 5% from its November forecast of 7.25% but it
raised its forecast for growth in 2022 to 7.25% from 6.25%.
It stuck to its previous forecast that the economy would
return to its size at the end of 2019, before the pandemic
struck, by the first quarter of 2022.
The BoE also said it was working on developing a new message
for investors and businesses about when it might start to remove
the huge stimulus in place for Britain's economy.
"The Committee agreed to ask Bank staff to commence work to
reconsider the previous guidance on the appropriate strategy for
tightening monetary policy should that be required in the
future," it said.
(Writing by William Schomberg; Additional reporting by Alistair
Smout, William James, Iain Withers, Kate Holton, Guy
Faulconbridge, Huw Jones, Estelle Shirbon; Editing by Toby
Chopra and Catherine Evans)
