Bank of England set to hold rates

By Christina Fincher

LONDON (Reuters) - The Bank of England looks more likely to leave interest rates on hold rather than cut them later on Thursday, but a stream of dismal data over recent days has made the decision a close call.

Only five of 65 economists polled last week predicted a rate cut this time around. But at least two banks have since joined the ranks of those predicting a reduction.

The Bank cut rates last month to 5 percent and back-to-back moves might give the impression it was taking its eye off the ball about inflation.

With oil prices vaulting to record highs above $122 a barrel, this would be a risky strategy. Nevertheless, growing signs of weakness in the economy mean the risk of doing nothing and letting the credit squeeze tighten its grip has also grown.

Growth in the service sector -- which accounts for three-quarters of the economy -- ground to a virtual standstill last month and house prices, as measured by the country's biggest mortgage lender, fell at their fastest annual rate in 15 years.

Surveys this week have also pointed to a sharp slide in consumer confidence and a weakening job market. Money markets currently reflect an almost 1 in 3 chance of a rate cut at 12:00 p.m.

"The interest rate decision is finely balanced and impossible to call with any degree of confidence," said Howard Archer at Global Insight.

"The recent stream of weaker data suggest the UK economic downturn is deepening and widening."