*

BoE expected to raise Bank Rate to 4.0% from 3.5%

*

Outside chance seen of smaller 25 basis-point move

*

Investors await clues on how much higher Bank Rate will go

*

UK recession expected but core inflation not falling

*

Rates announcement at 1200 GMT, news conference 1230 GMT

By William Schomberg

LONDON, Feb 2 (Reuters) - The Bank of England is poised to raise interest rates for the 10th time in a row on Thursday to keep up its fight against rampant inflation, but it might also drop a hint about when the steep climb in borrowing costs will end.

With Britain's economy already forecast to go into recession and fare worse than its peers in 2023, Governor Andrew Bailey and his colleagues must judge how much of a delayed impact their run of rate hikes so far, starting in December 2021, will have.

Unemployment is close to its lowest since 1974 but the housing market is cooling fast and confidence among consumers and employers is weak.

Strikes by public service workers have added to the sense of gloom in an economy still struggling to adjust to Brexit and the coronavirus pandemic.

Bailey has said there are hopes that the surge in prices was turning a corner after consumer price inflation dipped from a 41-year high of 11.1% in October to 10.5% in December.

But underlying inflation has not fallen and wages are growing at the fastest pace on record apart from during the pandemic when state support distorted the data.

BoE Chief Economist Huw Pill has warned of the risk that price growth will get stuck above the BoE's 2% target.

"I am more worried that underlying inflationary pressures are far from played out," John Gieve, a former BoE deputy governor, told The Times. "Earnings in particular are growing strongly especially in the private sector and firms still expect to be able to raise prices."

Investors are largely pricing another half percentage-point rate hike at 1200 GMT on Thursday, taking Bank Rate to 4.0%, its highest since 2008, though some see a slim chance of a quarter-point move.

On Wednesday, the U.S. Federal Reserve slowed the pace of its rate hikes with a quarter-point move but said it expected further increases would be needed.

The European Central Bank looks set to raise rates by a half a percentage point on Thursday to 2.5% and the main question for investors is how much more tightening it will signal.

LOWER RATES PEAK

As of Wednesday, investors were pricing a roughly two-in-three chance that BoE rates will peak at 4.5% by June, with the possibility of an earlier halt at 4.25%.

In the run-up to the BoE's November meeting, investors were expecting rates to peak at around 5.25%.