The Bank of England decision tomorrow is expected to “be very close”, says UBS, predicting a 5-4 vote to deliver the first rate of the cycle.
Current market pricing implies 60% chance of no cut at this meeting.
"The key reason why we expect the MPC to cut rates is the recent data," writes UBS economist Anna Titareva.
Namely, June inflation of 2% was in line with the BoE's May projections, that the overshoot in services inflation at 5.7% in June was largely due to volatile components that "should not have an impact on the medium-term inflation outlook", and that July's labour market data showed more pronounced signs of a slowdown in wage growth.
ING economist James Smith felt markets saw the 1 August MPC meeting as "a 50:50 call" between the first 25bp rate cut and another hold decision.
"We’re leaning towards a cut, though we agree nothing is for certain," he said, adding that the decision will hinge on a handful of committee members who felt the June decision was “finely balanced”.
Both economists acknowledge that the lack of recent communication from the bank's Monetary Policy Committee pushing back against current market pricing, made it hard to gauge how they feel about recent data, which Titareva said makes a delay in the cut until the meeting on 19 September more likely.
Recent comments by Jonathan Haskel, Catherine Mann and Huw Pill suggest that they will vote for rates on hold, with Megan Greene also likely voting for no change, said UBS's Titareva, while at the other end of the spectrum, Swati Dhingra and Dave Ramsden are likely to continue voting for a cut as they did at the last meeting.
This leaves BoE governor Andrew Bailey and deputy governors Sarah Breeden and Clare Lombardelli as the swing votes.
This is Lombardelli's first MPC meeting, after she replaced Ben Broadbent on 1 July.
"While we think that Bailey and Breeden could be the MPC members for whom the decision was 'finely balanced' last time and hence they could be ready to cut in August," said Titareva, "little is known" on the voting intentions of Lombardelli.
At his last press conference, in May, Bailey raised the possibility of cutting rates faster than markets expected at the time, "a rare statement of intent" that "suggests he is keen to get on with the job of cutting rates", said Smith.
After just two MPC members voted for a cut last time, Smith sees three members as reluctant to cut yet, leaving "four or five in the middle, and history suggests they tend to move as a group".
If the committee does cut rates this week, expect a "fairly vague" statement on future meetings, James added with the dovish risk scenario that governor Bailey makes similar comments in his press conference to the ones he made in May, which might hint more directly at what comes next.