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(Kitco News) - The Bank of England continues to battle the nation's stubbornly high inflation by raising interest rates by another 25 basis points.
In a widely expected move, the central bank increased its official Bank Rate to 5.25%, up from 5.00%.
In its monetary policy statement, the central bank said that while inflation has fallen more than expected, it remains well above its 2% target. In this environment, BOE noted that it sees a terminal rate above 6%, up from its May forecast.
However, the BoE also suggested that it could start to slow the pace of rate hikes through the rest of the year.
"Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation," the central bank said in its monetary policy statement. "If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with its remit."
The gold prices are seeing some volatility against the British pound even as it outperforms compared to the U.S. dollar. Spot gold against the pound last traded at £1,530.81, up 0.58% on the day; meanwhile, spot gold against the U.S. dollar is currently trading around $1,935.59 an ounce, up 0.13% on the day.
Rate analysts at TD Securities said that although the BoE will continue to raise rates, it is laying the ground work to end its tightening cycle
"In our view, this is the language of an MPC laying the groundwork for reaching a terminal rate. Once they've stopped hiking rates, this guidance can remain in every statement until focus shifts toward rate cuts, and certainly so long as inflation remains above target," the anlaysts said.
Although inflation remains extremely elevated, the BoE said it expects consumer prices will continue to fall through the rest of the year.
"It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, is projected to remain elevated at close to its current rate in the near term," the central bank said.
Looking at economic activity, the central bank said that it sees GDP growth continuing to hover around 0.2%.
"Underlying quarterly GDP growth has been around 0.2% during the first half of this year. Bank staff expect a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes, and most business surveys over recent months," the BoE said.
