* BoE slows bond-buying but hikes growth forecast
* Sterling falls then rebounds
* 'Super Thursday' elections see Scots head to polls
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Updates throughout after BoE statement, adds new quotes,
latest prices)
By Tommy Wilkes
LONDON, May 6 (Reuters) - Sterling rose on Thursday after
the Bank of England flagged a modest slowdown in its bond-buying
stimulus and predicted a much sharper rebound in the British
economy thanks to easing COVID-19 restrictions.
The pound had initially dropped after the BoE said it had
kept its interest rate on hold as well as the end-of-year target
size of its bond-buying programme.
Minutes later though, sterling recovered to hit the day's
high of $1.3942, up 0.2% on the day, after the BoE
announced a slowdown in the pace of those purchases and said it
forecast economic growth of 7.25% in 2021, up from a 5% forecast
in February.
Against the euro too, sterling recovered most of its losses
and was last at 86.47 pence, down just 0.2%.
Britain's relatively successful COVID-19 vaccine rollout has
allowed the economy to reopen faster than many had expected and
with consumers and businesses stocked up on cash saved during
the pandemic, economists are hiking their growth forecasts.
"The punchy cocktail of a reopening economy and excess
consumer savings means that the UK economy should be set for a
party for the remainder of the year," Ambrose Crofton, global
market strategist at J.P. Morgan Asset Management.
"Any prospect of negative interest rates seems to have
sailed for now" he added.
Slowing the pace of bond-buying represents a moderate step
towards the moment when the BoE begins to reverse its emergency
stimulus. The BOE said it would slow its purchases to 3.4
billion pounds between May and August, from the current 4.4
billion-pound weekly pace.
But a reversal is still seen as some way off -- most
economists polled by Reuters last month pencilled in a first
rate hike only in 2023.
"We had the initial headline that the overall purchase
target was unchanged and that was greeted positively by markets
given that there had been some speculation of a possible
reduction in purchase volumes," said Richard McGuire, head of
rates strategy at Rabobank.
"And then it appears that the market responded to the
headlines that the BoE would slow the pace of bond purchases. As
the dust settles, there are also upbeat macro economic forecasts
as well but overall it is a modest response."
Two-year British government bond yields initially fell
towards a two-week lOW, then rose back to stand 1.1 basis point
higher on the day.
ELECTIONS
Thursday is a busy day for the UK with a series of local and
regional elections. Dubbed 'Super Thursday', voting is underway
in the Scottish and Welsh devolved parliaments as well as a
clutch of local English council seats and a closely-watched
parliamentary by-election in England's north east.
Of most interest to sterling traders is the Scottish
election, where the pro-independence ruling Scottish National
Party has vowed to call another referendum on breaking away from
the United Kingdom if it wins a majority of seats.
Polls put the SNP significantly ahead of rivals but it could
fall short of an outright majority.
(Additional reporting by Joice Alves and Dhara Ranasinghe
Editing by Sujata Rao)