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Bank of England Keeps Rates Steady, Gold In GBP Rises

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Image Courtesy of Flickr user 'Bank of England'

(Kitco News) - Gold priced in British pounds rose after the Bank Of England announced it is keeping interest rates unchanged at record low on Thursday; the central bank also highlighted the impact of Brexit as it slashed its economic growth forecasts for both 2017 and 2018.

The BOE decided to leave its official borrowing costs at 0.25% in a 6-2 vote and warned U.K. consumers to expect higher inflation and weaker wage growth.

Spot prices in British pounds rose 0.80% to trade at £965.02. In comparison, spot gold in U.S. dollar edged down 0.02% to $1,266.60 at the time of publication.

At a press conference following the decision, Governor Mark Carney said the Bank needs to see more of a pick-up to justify a rate hike. Carney also highlighted that borrowing costs might be raised more than expected in the next three years.

One of the biggest pressures weighing on U.K. households is the impact of Brexit, the BoE said.

“Deferral of investment is going to mean that the supply capacity of the economy expands at a slower rate,” Carney said at the news conference. “The speed limit, if you will, of the economy has slowed... that has consequences, could have consequences for monetary policy, depending on the evolution of demand.”

The Bank now projects 2017 economic growth to be at 1.7%, down from 1.9%, while 2018 growth is now at 1.6% versus the previous estimate of 1.7%. Projections for 2019 remained at 1.8%.

The BoE also kept its other stimulus measures unchanged – the stock of government bonds purchased under the quantitative easing will remain at £435 billion and the Bank’s corporate bond pile will be kept at £10 billion.

Some economists are not convinced the BoE will be raising rates any time soon.

“We hold the view that the Bank of England is highly likely to sit tight on interest rates through 2017 and 2018 - and very possibly beyond. While we acknowledge the next move in interest rates is likely to up, the majority of members are reluctant to consider an interest rate hike at a time of prolonged economic and political uncertainties centred on Brexit, alongside the limited second-quarter GDP developments appearing to suggest increasingly downbeat firms sitting in their industrial and construction investment plans,” said Raj Bandiani, senior principal economist at IHS Markit.

Gold in GBP [ Kitco Inc. ]

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