The Bank of England looks in a position to cut interest rates on Thursday after holding them at a 16-year high of 5.25% for the past year, though markets and economists are far from certain the British central bank will take the plunge.
Economists polled by Reuters last week overwhelmingly expected a quarter-point cut but think the vote will be close on the BoE's Monetary Policy Committee, with only a 5-4 majority in favour.
Late on Wednesday, financial markets were pricing in a 66% chance of a quarter-point cut, and then expected one more quarter-point cut before the end of the year.
"It's certainly going to be a finely balanced decision. You can see that from the market pricing," said Jack Meaning, chief UK economist at Barclays.
In June, the MPC voted 7-2 to keep rates on hold, but minutes of the meeting recorded that several of those who voted to hold had been close to voting for a cut.
There has also been a change of personnel - with former OECD and finance ministry chief economist Clare Lombardelli succeeding Ben Broadbent as deputy governor, giving the MPC a female majority for the first time.
British consumer price inflation returned to the BoE's 2% target in May and stayed there in June, down from a 41-year high of 11.1% struck in October 2022.
This leaves British inflation lower than in the euro zone - where the European Central Bank cut rates in June - and the United States, where on Wednesday the Federal Reserve kept interest rates steady but opened the door to a September cut.
However, the BoE expects headline inflation to edge up over the coming months and is more focused on what it sees as the medium-term drivers of inflation: services prices, wages and more general tightness in the labour market.
Services price inflation is the biggest sticking point. At 5.7% in June, it has fallen much less than the BoE forecast three months ago.
The question for policymakers is whether that represents greater medium-term pressures, or is due to one-off effects such as a surge in hotel prices during concert tours by artists such as U.S. singer Taylor Swift.
NO TIME TO DELAY?
Meaning, a former BoE economist, said policymakers would be wrong to delay a rate cut until September.
"There is always a reason to wait a little bit longer ... (but) if you wait until it's absolutely conclusive, then you've probably waited too long," he said.
By September, official data is likely to show headline inflation back above 2% - superficially making a rate-cut look ill-timed - and, unlike in August, there is no scheduled press conference for Governor Andrew Bailey to explain the decision.
Moreover, updated BoE forecasts on Thursday are likely to still show inflation falling back below its 2% target in the medium term - making a rate cut necessary sooner rather than later, given the time it takes for lower rates to affect prices.
The September meeting is also when the MPC must hold an annual vote on the pace at which it reverses past quantitative easing - a decision that it tries to keep distinct from its regular votes on interest rates.
However, it is possible the MPC will opt for caution.
Bailey in June said that policymakers "need to be sure that inflation will stay low" before cutting rates, and Pill last month said wages and services prices continued to show "uncomfortable strength".
Growth so far this year has also been stronger than the BoE or most economists expected
"While it will be a very close call, the economy's recent strength and the stickiness of services inflation leads us to think that the Bank of England will wait," said Ruth Gregory, deputy chief UK economist at Capital Economics.
