Calls for an unprecedented jumbo 75 basis point lift to interest rates from the European Central Bank next week are on a knife's edge as inflation soars although a very slim majority of economists said it would be tamer, a Reuters poll found.

Late to the rate-setting cycle compared to its peers despite rocketing inflation the ECB didn't start raising borrowing costs until July when it made its first increase in over a decade. Falling behind has put increasing pressure on the euro, now trading below parity to the U.S. dollar.

The ECB surprised many in July with a larger than expected 50 basis point lift, the biggest move in over two decades, taking the refinancing rate to 0.50%.

But that clearly was just the beginning, with inflation in the euro zone running at more than four times the Bank's 2% target, reaching a record 9.1% last month.

Yet now the ECB faces the prospect of raising rates aggressively just as the economy is almost certainly entering recession, with the probability of one within a year a median 60% compared with 45% in a July poll.

Just under half, 30 of 61 economists in the Aug. 29-Sept. 2 poll, were expecting a 75 basis point increase on Thursday while 27 said the Bank would deliver 50 basis points. Only four expected a modest quarter-point hike.

Among euro zone market makers, there was a majority for a 75 basis point move, 18 of 26. Indeed, financial markets are now pricing in the jumbo move and over the last few days a slew of economists have changed their view to 75.

The United States Federal Reserve has already made a 75 basis point lift and the Bank of Canada jacked up its key rate by 100 basis points in July and will likely add another 75 next week.

At the central bank conference in Jackson Hole, Wyoming, and subsequently, ECB policymakers have called for decisive and swift action to combat inflation, making clear the choice at next week's policy meeting would be between 50 and 75 basis points.

"This remains a very close call - the debate is highly complex, but the mix of recent communication paired with the August upward surprise in headline, and especially core inflation, means a bigger move than in July has now become marginally more likely," noted Ruben Segura-Cayuela, Europe economist at BofA.

Over half of respondents, 31 of 53, saw a 50 basis point hike at the October meeting, bringing the refi rate to 1.50%, with three expecting another 75 basis point move. Seventeen said 25 basis points while the rest forecast no hike then.

A majority of economists, 32 of 53, expected a 25 basis point move in December, with 13 expecting 50 then and one saying 75.

Medians in the poll said the refinancing rate would end the year at 2.00%, compared to 1.25% in July's poll. When asked about the risks to their forecasts were skewed, an overwhelming 35 of 37 said higher than they currently expect.

OUTLOOK DARKENS

Recent data have painted a gloomy outlook for the economy as consumers feeling the pinch from a deepening cost of living crisis cut spending and it was expected to flatline this quarter.

Next quarter it will contract 0.3% and then by 0.2% in early 2023, meeting the technical definition of recession. In July those forecasts were for growth of 0.2% in both quarters. On an annual basis it will expand 2.9% this year before slowing to a paltry 0.4% in 2023.

The probability of a recession within a year rose sharply to a median 60%, rising to 70% in the next two years, which given the usual reluctance to forecast a slump well in advance strongly suggests a recession is already under way.

The median forecast showed inflation peaking at 9.0% this quarter and next before gradually declining but wasn't seen at the ECB's goal across the forecast horizon through next year. In the July poll the Q3 and Q4 forecasts were for 8.5% and 7.8%.

But it could peak at 12.0% later this year, the median reply to an extra question suggested although forecasts ranged as high as 17%.

(For other stories from the Reuters global economic poll: