(Kitco News) - The gold market continues to consolidate its breakout gains against the British pound as the Bank of England holds interest rates unchanged but signals that it is still expected to ease its monetary policy this year.
As expected, the BoE maintained the Bank Rate at 5.25%. Although interest rates remain unchanged, the central bank signaled that it intends to ease at some point this year.
“The Committee’s updated projections for activity and inflation are set out in the accompanying May Monetary Policy Report and are conditioned on a market-implied path for Bank Rate that declines from 5¼% to 3¾% by the end of the forecast period, compared with an endpoint of 3¼% in February,” the central bank said in its monetary policy statement.
The latest decision is not having much impact on gold as prices continue to consolidate near last month’s record highs. Spot gold last traded at £1,859.47 an ounce, up 0.20% on the day.
Looking at economic activity, the BoE said that it expects national GDP to grow by 0.2% in the second quarter.
“Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period. A margin of economic slack is projected to emerge during 2024 and 2025 and to remain thereafter, in part reflecting the continued restrictive stance of monetary policy,” the central bank said.
The BOE also sees further uncertainty around the labor market, which is expected to impact inflation.
“There remains considerable uncertainty around statistics derived from the ONS Labour Force Survey. It is therefore more difficult to gauge the evolution of the labour market. Based on a broad set of indicators, the MPC judges that the labour market continues to loosen but that it remains relatively tight by historical standards,” the monetary policy said.
Although the BoE made only incremental changes to its guidance, analysts noted that two members of the central bank voted to cut rates at the meeting. Economists were expecting to see a unanimous front to maintain the current rate.
Michael Brown, Senior Research Strategist at PepperStone, noted that MPC Deputy Governor David Ramsden voted for an immediate rate reduction, joining Swati Dhingra in her dovish dissent.
“Clearly, this represents a further dovish pivot from the MPC, increasing the likelihood that the first Bank Rate cut is indeed delivered at the next meeting in June,” Brown said.
