The Bank of England is braced for a knife-edge decision on interest rates as policymakers consider whether to cut borrowing costs for the first time since the start of the Covid pandemic. After a sharp fall in inflation this year, Threadneedle Street is poised for a first reduction in borrowing costs since ratcheting up interest rates from a record low of 0.1% in December 2021 to the current level of 5.25%. Financial markets predict a quarter-point cut to 5% on Thursday, although the decision is expected to be a close call, with some economists warning the central bank could hold off until its next policy meeting in September. Official figures from June show headline inflation remained at the 2% target for a second consecutive month, having fallen from a peak of 11.1% in October 2022 at the height of the cost of living crisis after the Russian invasion of Ukraine triggered a surge in energy prices. Threadneedle Street has said its decision will rest on whether price growth in the service sector of the economy is slowing, and whether Britain’s jobs market is cooling to levels consistent with keeping inflation near the 2% government target. Wage growth slowed in May to the lowest level in two years and unemployment remained unchanged, while the number of vacancies dropped by 30,000 amid fading hiring demand in retail and hospitality. However, economists have warned that stubborn pressures in the domestic economy remain, after the UK recorded a stronger than expected recovery from recession in the first quarter of the year. Three members of the Bank’s nine-strong monetary policy committee have voiced concern over persistent inflationary pressures, including the Bank’s chief economist, Huw Pill. “I think it’s still an open question on whether the timing for a rate cut is now,” he said earlier this month. However, Swati Dhingra, consistently one of the most dovish members of the MPC, warned this month that it was time for the Bank to “stop squeezing living standards” and cut interest rates. Financial markets have been on a rollercoaster in the past month, reflecting the difficulty in predicting a close decision. City economists expect the MPC to be split by five votes to four in favour of a cut, with the governor, Andrew Bailey, holding the casting vote. Pricing in financial markets reflected a 65% probability of a cut on Wednesday evening. Analysts said the Bank was likely to upgrade its growth forecasts in its latest monetary policy report, after a stronger than expected performance in recent months. The UK exited last year’s brief recession in the first quarter, before a brief setback in April when growth stalled, before stronger than anticipated growth of 0.4% month on month in May. Kathleen Brooks, research director at the financial trading platform XTB, said: “We think it would be unusual for the Bank of England to cut rates and upgrade its growth forecasts at the same meeting. Thus, this decision for the Bank of England is too tough to call, in our view, and we expect markets to be volatile around this decision.”