Markets are split on whether to cut or hold the base rate — but virtually all economists agree that the Monetary Policy Committee’s decision this week will be “a close call”.  

Traders’ bets are finely balanced at just under a 50% chance for a rate cut on Thursday.  

The Bank of England’s nine-strong rate-setting body has kept the interest rate at a 16-year high of 5.25% since last August, despite inflation returning to its 2% target.  

ING forecasts a 6-3 split in favour of a base 0.25% rate cut, while Deutsche Bank predicts that the majority in favour of a cut will be tighter still at 5-4.   

At its last June meeting, policymakers voted 7-2 to hold rates.  

ING developed markets UK economist James Smith says: “The UK inflation story is looking better despite some recent upside surprises in services.   

“Thursday’s meeting looks like a close call, but we’re sticking to our long-held base case that the Bank will indeed cut rates then.”  

But analysts at Danske Bank say rate setters will hold rates this week — and instead “deliver a dovish twist to its forward guidance priming markets for a forthcoming start to a cutting cycle”.   

The Danish bank’s view is that the MPC will set its first 0.25% rate cut in September, which would be the first base rate reduction since March 2020.  

The MPC has consistently said falls in service price inflation and wage growth are two key measures it will watch before moving to cut the base rate.  

But services inflation was also unchanged at 5.7%, in the latest official figures in June — while regular earnings lifted to 6% in the three months to April, from 5.9% in the previous quarter, also according to official June data.  

However, Deutsche Bank senior economist Sanjay Raja says the MPC “will likely highlight a more holistic view on the data, taking into account not just wage growth and services inflation, but forward-looking indicators” of these two measures, which project near-term falls.  

ING highlights the close nature of the vote this week.  

ING’s Smith says: “Two out of the nine-strong committee have already started voting for rate cuts.   

“Two, maybe three, take the opposite view and are visibly resistant to cuts. That leaves four or five in the middle who appear torn.”