Gold rises against British pound as BOE raises interest rates for fourth time

LONDON (May 5)  Spot gold against the British pound is pushing higher after the Bank of England raised interest rates to their highest level in 13 years to combat rising inflation pressures.

Thursday, as expected, the BoE raised interest rates by 25 basis points, pushing the Bank Rate to 1%.

The gold market is seeing some gains against the British Sterling. The rate hike hasn't provided much momentum for the currency. The Bank of England has strong competition from the Federal Reserve, which raised interest rates by 50 basis points Wednesday and signaled more aggressive rate hikes to come.

Spot gold last traded at £1,521.73 an ounce, up more than 2%. Spot gold against the U.S. dollar last traded at $1,899.30 an ounce, up 0.30% on the day.

While the English central bank is taking a steady approach to its monetary policy, the statement showed that some members would like to take more aggressive action. Three members wanted the central bank to raise interest rates by 50 basis points, the statement said.

The BoE noted that risks to the economy are growing; however, it expects to continue raising interest rates to get inflation back down to the 2% target.

It noted that Russia's war in Ukraine is creating global economic uncertainty and adding to rising inflation pressures.

"Global inflationary pressures have intensified sharply following Russia's invasion of Ukraine. This has led to a material deterioration in the outlook for world and U.K. growth. These developments have exacerbated greatly the combination of adverse supply shocks that the United Kingdom and other countries continue to face. Concerns about further supply chain disruption have also risen, both due to Russia's invasion of Ukraine and to Covid-19 developments in China," the statement said.

However, the BoE added that its focus remains on combatting inflation.

"In particular, should recent movements prove persistent as the central projections assume, the very elevated levels of global energy and tradable goods prices, of which the United Kingdom is a net importer, will necessarily weigh further on most U.K. households' real incomes and many U.K. companies' profit margins. This is something monetary policy is unable to prevent. The role of monetary policy is to ensure that, as this real economic adjustment occurs, it does so in a manner consistent with achieving the 2% inflation target sustainably in the medium term, while minimising undesirable volatility in output," the statement said.

KITCO