Bank of England policymakers will gather for a "knife-edge" decision on interest rates this Thursday following recent speculation a cut may be on the way.

Recent gloomy economic data has spurred on a raft of Bank rate-setters to signal growing support for a cut, with financial markets pricing in a 60 per cent chance of a reduction.

Two of the nine-strong Monetary Policy Committee have voted to lower rates from 0.75 per cent to 0.5 per cent in the last two meetings and disappointing growth data and falling inflation could see other policymakers join them.

But many economists believe better news on the UK jobs market and signs of improving sentiment in key areas of the economy may stay the Bank's hand.

The preliminary reading for purchasing managers index (PMI) showed Britain's private sector returned to growth for the first time in five months in January.

And in another dose of encouraging news, the EY Item Club's winter economic forecast being published on Monday reveals the outlook for the UK economy has improved over the past three months.

It has upgraded its growth forecast to 1.2 per cent for 2020 from the one per cent previously predicted, though it marks a slowdown on the estimated 1.3 per cent seen in 2019.

The EY Item Club forecasts rates to stay on hold at 0.75 per cent for the next 18 months, but stressed the MPC's decision "looks to be on a knife edge and is very hard to call".

The Bank's latest forecasts - due alongside Thursday's rates decision -will also be watched closely for changes to the growth and inflation outlook.

It comes after official monthly growth figures showed gross domestic product unexpectedly fell by 0.3 per cent in November after a weak performance in the manufacturing sector.

This was followed by data showing inflation tumbling to a three-year low of 1.3 per cent in December.

Bank governor Mark Carney has recently warned if growth does not pick up as expected, a "relatively prompt response" on rates would be needed.