* Bean hints BoE will keep easing bias next month
* Says would not welcome sharp recovery in sterling
* Says QE will last until inflation risks exceeding target
* Sees negative Q2 GDP figure for Friday
(Adds detail on QE, GDP, property market)
By David Milliken
BIRMINGHAM, England, July 21 (Reuters) - A top Bank of England official on Tuesday raised the possibility of more monetary easing when he foresaw little change to the bank's forecast for low inflation and continued economic weakness.
BoE Deputy Governor Charles Bean said the bank's forthcoming quarterly forecasts will be similar to those published in May.
The BoE will publish new growth and inflation forecasts on Aug. 12 and policymakers have said they will use these to decide whether to increase the central bank's 125 billion pound asset purchase programme.
"We're just in the process of preparing a new set of projections that will be published in August," Bean said. "So that may result in some minor tweaking ... but I think the broad picture that we had in May is still pretty much intact."
Bean also said he did not want to see a strong rise in the value of the pound
In its May report, the BoE said any recovery in the economy would be fragile and inflation was likely to undershoot the central bank's 2 percent target on a two-year horizon.
"If there is no big change, it seems this is saying the 2-year ahead inflation projection will still be below target -- arguing for more easing," said Alan Clarke, UK economist at BNP Paribas.
"This implies that inflation will still be undershooting the 2 percent target over the medium term which, in turn, keeps the door open for additional action on the unconventional policy front," said Richard McGuire, a fixed income strategist at RBC Capital Markets.
Bean told business leaders at the Birmingham Chamber of Commerce and Industry inflation expectations were satisfactory, and that the BoE would not reverse its QE policy until there was a risk of inflation overshooting its 2 percent target.
Moreover, the Bank would prefer to raise interest rates before selling the gilts it had purchased, he added.
Output was near its low-point for the economic downturn, and second-quarter GDP data due on Friday would reflect the knock-on effect of the steep decline in the first three months of the year, Bean said.
"The GDP figure ... will still show almost certainly a negative figure. But that would reflect as much as anything a sharp deterioration in the first quarter. It would be perfectly consistent with activity being flat in the second quarter itself," he said.
More than 95 percent of the BoE's asset purchases so far have been government bonds. Since April, the central bank has been buying gilts at roughly twice the rate that the government has been issuing them.
The BoE is on track to hit its 125 billion pound asset purchase target before the end of this month and investors are nervous the biggest buyer in the market may suddenly disappear.
Bean acknowledged gilt yields had risen recently and said a recovery in economic optimism and the size of government borrowing were likely to blame. Gilt yields were lower than they would have been without the central bank's purchases, he said.
STERLING STIMULUS
Bean said the pound's 20 percent fall since the financial crisis began had provided a useful stimulus to the economy and he did not want to see a strong rise.
"What we wouldn't be particularly pleased to see is a strong recovery of sterling from where it is. "We would certainly hope that we don't see a bounce back to where it was a couple of years ago," Bean said.
Gilt purchases from foreign investors helped keep down sterling, contrary to media criticism that they represented a leakage overseas of the BoE's newly created QE funds, he added.
Bean said the central bank would study the government's strategy to reduce debt after the next election and would not be inclined to tighten monetary policy sharply if fiscal policy were being tightened sharply at the same time.
A fragile banking system was still acting as a drag on the British economy, and recent signs of more stable property prices -- which have fallen around a fifth from their peak -- may not last if more houses come on the market and mortgage lending does not rise to match this, he added. (Editing by Stephen Nisbet)