“Sterling is currently the best performing G-10 currency in the year to date … (But) there are clear caveats to this optimistic outlook,” Rabobank analysts said in a note Monday.
“There are signs that the U.K. economy lost momentum in the first quarter, which could throw up hurdles for BOE hawks, also the Brexit trade talks could be tough,” they said.
Economists are expecting a slight decrease in gross domestic product (GDP) figures in the first quarter of 2018, after a growth rate of 0.4 percent in the last quarter of 2017. This is because the U.K. was severely hit by bad weather during the month of March, which is believed to have had an impact on every sector of the economy.
Meanwhile, markets are expecting the BOE to raise rates at least once this year, with many expecting this to happen at the next meeting in May. However, if GDP figures disappoint, then the BOE might not be in a comfortable position to hike rates.
In March, two out of the nine policymakers at the BOE said rates should rise immediately to 0.75 percent from the current 0.5 percent, but the majority favored a gradual approach to increases.
Furthermore, new data Tuesday also showed that unemployment hit a new four-decade low. But the same data also showed that wage growth stalled in the three months to February, which could represent another hurdle for the BOE when considering raising rates.