LONDON (Reuters) - The Bank (NASDAQ: TBHS - news) 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."

INFLATION PROBLEM

While there is little doubt the economy is slowing, inflation is above target and likely to rise even further in the coming months as food and energy prices work their way through the system.

Many economists expect inflation to breach the 3 percent ceiling before long, a move that would require Bank Governor Mervyn King to write a letter of explanation to the government.

"We believe June is a much better bet for the timing of the next interest rate cut," said Alan Clarke, an economist at BNP Paribas (Paris: FR0000131104 - news) .

"A move in June would maintain the recent pace of one cut every two months. It would also allow the accumulation of more concrete evidence that the economic data are deteriorating."

Whatever the outcome, Thursday's vote is unlikely to be unanimous.

Splits on the nine member monetary policy committee have become increasingly apparent.

Timothy Besley and Andrew Sentance both opposed last month's decision to cut rates and have used recent speeches to stress the risks posed by inflation.

David Blanchflower, on the other hand, voted for a 50 basis point cut and has warned the economy could tip into recession and house prices fall by as much as a third without aggressive monetary easing.