With inflation in England expected to soon rise above 3%, markets are pricing in the probability of two interest rate hikes by the Bank of England before year-end — with the first to potentially happen on Nov. 2.

Read: Interest rates in U.K. will rise for first time in decade

In response, “U.K. government bond (gilt) yields have been on the rise,” says Richard Turnill, global chief investment strategist at BlackRock, in a weekly global commentary report.

Though U.K. growth has picked up, “we see economic fragility holding back further BoE tightening,” he says.

In fact, BlackRock’s U.K. outlook suggests GDP will move lower over the next year, while other G7 economies experience growth.

“Brexit negotiations in particular are weighing on the U.K. economy,” says Turnill, adding that progress is needed on key Brexit issues, such as trade between the U.K. and EU, and the U.K.’s financial obligations to the Union.

Derek Holt, vice-president and head of capital markets economics at Scotiabank, says in a weekly economics report that “hikes are occurring just as inflation is peaking, and the risk of a hard Brexit remains material such that the scope for policy error cannot be dismissed.”

Key to supporting U.K. investment and business confidence is an agreement to allow the U.K. to trade on existing terms during a transition period, says Turnill.

“The closer we get to March 2019 [the exit date], without an agreement, the more U.K.-domiciled businesses will start executing contingency plans for a potential Brexit with no deal in place,” he says.

Read: Brexit negotiations halted until U.K.’s exit bill is resolved

Turnill’s strategy: “We hold a cautious view on U.K. duration in the near term, with the BoE likely to raise rates this week. […] Similarly, we see the pound supported in the short term, but risks skewed to the downside as it acts as a barometer of Brexit anxieties over the medium term.”

Read: When to keep and let go of investments

For equities, he sees similar risks to domestically exposed companies, and thus favours “U.K. and eurozone companies geared to sustained growth in the global economy.” He adds that “companies with much of their cost base overseas should have some cover against a strong euro in the short term.”

Read the full BlackRock report and Scotiabank report.