Gold price continues to rise against British pound as BoE governor said inflation threat has never been higher
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(Kitco News) - Spot gold prices continue to see gains against the British pound as the Bank of England Governor Andrew Bailey warned consumers that the central bank would continue to raise interest rates to bring down inflation even as the economy continues to cool.
The comments from Bailey came during a press conference after the Bank of England raised its Bank Rate by 75 basis points to 3%. This was the biggest rate hike from the BoE since 1989 and came as inflation stands at its highest level in 40 years.
Although the BoE recognizes that British consumers are struggling in the face of rising food and energy costs and increasing mortgage and borrowing rates, Bailey said that for the economy to function properly, inflation must be brought under control and lowered.
"We understand the difficulties we are in," said Bailey. "But if we don't take action to bring down inflation now, it will get worse," he said.
Gold prices against the British pound are trading near session highs following the comments from Bailey. Spot gold last traded at £1,450 an ounce, up 1% on the day.
The central bank's grim outlook on inflation comes as the British economy continues to slow. In its monetary policy statement, the central bank warned that the economy could see a two-year recession as interest remain elevated.
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According to its economic projections, the BoE sees the economy contracting by 1.5% in 2023 and sees a further 1% decline in GDP in 2024.
Although the economy is expected to contract in the next two years, the BoE said that inflation remains the primary concern. The central bank sees inflation peaking in the fourth quarter at 11%.
Bailey said the upside risk to inflation is the largest it has ever been in the history of the Monetary Policy Committee.
As to how high interest rates could go, Bailey said that the central bank expects the terminal rate to be slightly lower than the latest market projections of 5.25%.