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A new analysis has suggested that the Bank of England could likely increase interest rates as soon as this coming May if a transition deal is finalised in Brexit negotiations.
John Wraith, an analyst at UBS, suggested that stronger than expected growth in terms of GDP during the fourth quarter of the past year and an improved momentum during the first month of 2018 could urge members of the monetary policy committee (MPC) of the Bank to increase rates by 25 basis points by the middle of this year.
The said hike would put the base rate at 0.75 percent which is its highest in nearly nine years.
Wraith added, however, that the said scenario is “explicitly conditional” on a transitional deal that is being agreed by March at the latest.
Interest rates were hiked by the Bank during its meeting last November, increasing them from their historic low of 0.25 percent to 0.5 percent. However, weak consumer confidence and low wage growth have caused some economists to suggest that the Bank should keep rates on hold for the foreseeable future.
However, in his note today, Wraith gave a probability of 50 percent to a rate increase by May. He said: “We are sceptical that the smooth path effectively priced in thereafter will materialise, and believe any optimism from an early transitional deal could soon run into fresh doubt as the challenges relating to more permanent arrangements resurface.”