LONDON, Sept 18 (Reuters) - Sterling edged lower against

a stronger dollar on Thursday as investors looked ahead to a

policy decision from the Bank of England, which is widely

expected to leave rates on hold but could unveil changes to its

bond sales programme.

The pound fell 0.13% to $1.36125 after touching its

highest since July 2 at $1.3726 in the previous session.

The U.S. dollar firmed, extending its rebound after plunging

to a 3-1/2-year low earlier in the week, as markets adjusted to

the Federal Reserve's measured stance on further interest rate

cuts.

Attention was on the BoE, which is expected to keep rates

steady at 4%, while slowing the annual pace of its 100 billion

pound ($136.10 billion) government bond sales in response to

recent volatility in debt markets.

"We think the BoE meeting that concludes Thursday will be

hawkish on rates but may well surprise dovish on its QT plans

for the next year," Krishna Guha, vice chairman of U.S.

investment bank Evercore ISI, said.

The BoE could well slow its quantitative tightening (QT)

programme, under which it sells its holdings of government

bonds, by more than expected to 60 billion pounds, or skew its

sales towards shorter-dated gilts, he added.

Data on Wednesday showed British inflation running at an

annual 3.8% in August, reinforcing expectations that further

rate cuts are unlikely in the near term.

"Main focus will instead be on any changes to their forward

guidance and the QT decision," Deutsche Bank said in a note.

Deutsche Bank chief UK economist Sanjay Raja sees a

"material risk" that policymakers abandon their "gradual and

careful" language on the downward path for Bank Rate.

Raja expects the BoE to trim its quantitative tightening

envelope from 100 billion pounds to about 70 billion pounds,

with a range of 65-75 billion pounds.

Sterling held steady against the euro, which

traded at 86.74 pence.

($1 = 0.7348 pounds)