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Gold stuck in neutral against the British pound as BoE raises interest rates by 25 basis points

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(Kitco News) - A sharp jump in inflation last month all but confirmed the Bank of England's latest 25 basis rate hike Thursday. Gold prices are stuck in neutral territory against the pound following the latest monetary policy decision.

In line with expectations, the BoE raised its Bank Rate to 4.25%, up from 4.00%. In a tone set by the Federal Reserve Wednesday, the British central bank downplayed the growing tensions in the global banking sector and is focused on bringing inflation down to its 2% target.

"The Bank of England's Financial Policy Committee (FPC) has briefed the MPC about recent global banking sector developments. The FPC judges that the U.K. banking system maintains robust capital and strong liquidity positions, and is well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC's assessment is that the U.K. banking system remains resilient," the central bank said in its monetary policy statement.

The central bank said that inflation remains its primary focus. Last month the Consumer Price Index rose to 10.5%, coming in much hotter than expected.

"The MPC's remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the U.K. monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a sequence of very large and overlapping shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term," the central bank said.

The central bank added that it is not ruling out other hikes if inflation rises.

"If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required," the central bank said. "The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit."

The Bank of England's relatively hawkish stance is causing gold prices to significantly underperform against the British pound. Spot gold against the pound is currently trading at $1,605.11 an ounce, roughly flat on the day. By comparison, spot gold against the U.S. dollar is seeing solid gains, last trading at $1,976.35 an ounce, up 0.38% on the day.

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