(Kitco News) - Gold prices are pushing higher against the British pound as geopolitical turmoil and rising energy costs reshape the Bank of England’s inflation outlook, even as the central bank holds firm on interest rates.
The Bank of England left its Bank Rate unchanged at 3.75% in an 8-to-1 vote, opting to maintain its “wait and see” stance despite growing inflation risks tied to escalating conflict in the Middle East. While the decision was widely expected, the central bank’s acknowledgment of a shifting inflation landscape is helping support gold’s appeal as a hedge.
Gold priced in British pounds climbed to £3,427.76 an ounce, up 1.7% on the day, tracking broader strength across commodity markets. At the same time, spot gold rose to $4,635.60 an ounce, gaining 2% on the session.
According to the Bank, the ongoing conflict has significantly altered the UK’s inflation trajectory, primarily through higher global energy prices.
“Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy,” the central bank said.
“The conflict in the Middle East has changed the outlook for inflation in the UK. The disruption the conflict has caused to energy supplies has led to a sharp rise in global energy prices. The immediate effects are already being felt in the UK, for example in higher fuel prices. CPI inflation increased to 3.3% in March and is likely to be higher later this year as the effects of higher energy prices pass through. That is a very different picture from three months ago, when inflation was expected to fall back to close to the 2% target,” the central bank added.
While the BoE struck a slightly more hawkish tone—highlighted by one member voting for a 25-basis-point hike—it also signaled that slowing economic growth could limit how far it tightens policy. That backdrop of persistent inflation risks and constrained rate hikes is proving supportive for gold.
“Overall, the MPC judges that current economic conditions are likely to lessen the strength of second-round effects that monetary policy needs to lean against. But there is uncertainty around this judgement and the MPC will monitor the evidence as it emerges,” the BoE said.
Despite the central bank’s cautious stance, gold showed little direct reaction to the rate decision itself. Instead, the metal continues to draw strength from rising geopolitical risks, elevated inflation expectations, and broad-based commodity gains.
