The Bank of England is widely expected to reduce interest rates by 25 basis points to 4.0% at its meeting next Thursday, 7 August, as policymakers continue to weigh a softening labour market against lingering inflation concerns.
A vote split on the monetary policy committee (MPC) is also predicted, reflecting the thorny nature of picking through the noisy economic data.
Since the MPC held rates steady at the last meeting on 19 June, a number of committee members (Andrew Bailey, Dave Ramsden, Alan Taylor and Megan Greene) have reiterated ongoing labour market easing and signs of some spare capacity opening up.
"The decision to cut rates is likely to be opposed by two or three MPC members,” said UBS economist Anna Titareva.
She forecasts a quarter-point cut, followed by one more 25bps cut this year, in November, to take the base rate to 3.75%, followed by three further cuts in 2026 to a terminal rate of 3.0%.
Macro data since the June meeting has been mixed, Titareva said, but labour market indicators point to enough disinflationary pressure to support easing.
Barclays also expects a 25bps cut, also flagging the potential for a three-way vote split, with two members voting for a larger 50bps reduction and two voting for rates to be held again.
Along with the decision, the BoE will release its quarterly Monetary Policy Report, where the focus will be on its projections with the potential for an increase to its inflationary forecasts.
"We expect guidance to be largely unchanged, retaining optionality around a baseline of a gradual and careful cutting cycle,” Barclays economist Jack Meaning said.
The Monetary Policy Report is expected to show minimal changes, he suggested, with UBS's Titareva expecting slightly higher inflation and stronger growth projections for 2025.
She sees the inflation prediction at 3.5% for 2026, up from the May forecast of 3.3%, with GDP growth revised to 1.25% from 1.0%.
Projections for 2026 and 2027 are likely to remain broadly unchanged.
Market pricing reflects expectations for gradual easing, with around 23bps priced in for the upcoming meeting and 46bps for the remainder of 2025. The pound has weakened in the run-up, falling approximately 3.75% against the US dollar over the past month.
Victoria Scholar, head of investment at Interactive Investor, said: "There are clear signs of economic deterioration, particularly stemming from the labour market, that warrant a dovish stance.
"Yet policymakers must weigh this up against the risk of inflationary pressures particularly with rising food prices and international uncertainty around Trump’s tariffs and volatile energy markets."
While a cut is expected for August, looking further ahead, she said it was "unclear" whether another cut will come in 2025.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “A rate cut is never nailed on, but this time round it has at least had a decent dollop of No More Nails… All of this points to a cut next week, and more cuts in the months to come.”