After much speculation, the Bank of England announced a rise in interest rates on the 2nd November, from 0.25 per cent to 0.5 per cent. This move reverses the decision made in 2016 to halve the base rate as a buffer against Brexit uncertainty.
Why has the base rate increased?
Between 2009 and 2016, interest rates remained consistent at 0.5 per cent, after they were cut drastically in the aftermath of the financial crisis.
Interest rate cuts are usually employed during economic uncertainty. It is now over a decade since the last increase in the rate, which was slashed from pre-2008 levels of 5.75 per cent right down to 0.25 per cent.
The rise now could indicate a cautious level of trust from the Bank of England in the economy, but it also provides a safeguard for further rate cuts in future, if growth proves disappointing.
What is the base rate?
This is the amount of money that the Bank of England charges to lend money to commercial banks. HSBC, Lloyds, and most major banks raise and lower their interest rates in line with the Bank of England, meaning the price of mortgages, overdrafts and bank loans will increase. On the flip side, those with bank savings can expect a small pay rise.
Does this mean anything for the gold price?
The price of gold has indirectly increased against Sterling, as Sterling itself has decreased against the dollar. The price of gold against other currencies remains largely unchanged.
Here’s a quick summary of the developments:
- Sterling charted its biggest 1-day loss against the dollar since June 2016 on the 2nd November.
- The gold price against Sterling increased by 1.54 per cent between 02:00 and 18:00 on the same day, to £978.26.
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