LONDON • UBS AG brought forward its forecast for the next UK interest-rate increase, though it also sounded a warning bell about such a move.
Bank of England (BoE) policymakers will raise their benchmark by 25 points at their May meeting, strategist John Wraith wrote in a report dated on Jan 31. In forecasts published after the BoE’s November rate hike, UBS had predicted no further increases through 2019. Its new prediction is “explicitly conditional” on the British government and the European Union (EU) reaching an agreement on a transitional deal by the time of the EU Council Summit in late March.
“To be clear, while we are now revising our forecast to incorporate another rate hike we did not previously anticipate, we continue to believe the Monetary Policy Committee took a risk with the UK economy by raising rates in November, and would be compounding this by doing so again in May.”
Investors have also been increasing bets on a UK interestrate increases as soon as May on the back of some solid economic data recently.
At Bloomberg Economics, economists this week also brought forward their prediction for the timing of the next BoE rate hike to August, and noted that even a move in May “can’t be ruled out”. They raised their forecasts for 2018 GDP growth — lifting it to 1.7% from 1.4% previously.
Wraith also revised his growth outlook for the UK. He now sees the economy expanding 1.4% this year and 1.2% in 2019, from 1.1% in both years previously. — Bloomberg