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Gold and silver prices were boosted in GBP last week, after the Bank of England raised interest rates to their highest level since 2009. However, the Bank has now been accused by its former chief economist of acting too slowly to curb inflation, wasting a chance to tackle steep price rises and the cost-of-living crisis.

Interest Rate Hike

Inflation is currently at a 30-year high and is forecast to hit 10% by the autumn due to the war in Ukraine driving up fuel and energy prices. Last week saw the Bank of England raise interest rates to 1% from 0.75%, their highest level for 13 years and the fourth consecutive increase since December.

The BoE’s announcement saw the pound slump to its lowest in nearly two years, and as the markets priced-in the weakness of the UK’s economy, the GDP prices of gold and silver experienced a rise.

The Bank of England defended raising rates whilst the cost of living is increasing, in order to attempt to cool surging inflation levels. Inflation reached 7% back in March, which was more than triple the Bank’s 2% target. However, the Bank warns that the UK now faces a sharp economic slowdown this year, with hardship for millions of families with little or no savings.

Too Late?

The former chief economist of the Bank of England has accused his previous employers of acting too slowly to curb surging inflation, and said the Bank is now facing its ‘stickiest situation’ since its independence in 1997, as prices soar.

In a previous speech marking his departure from the Bank in 2021, Andy Haldane had warned that inflation could rise by more than expected, saying that “everyone would lose” from greater inflation and that the Bank may need to react with bigger interest rises than he had seen. However, the Bank’s consensus at that time was that price rises were purely transitory.

Speaking after last week’s interest rate hike, Mr Haldane, interviewed by The Telegraph, said that he believes that early action might have eased the inflationary pressure, saving the need for such sharp interest rate rises. He went on to predict that inflation could possibly run above the Bank of England’s target for years, proving more persistent than thought.

Risk of Recession?

Economists have warned that increases in interest rates now may have little effect, due to rising global prices for oil and gas.

It has also been reported that the Bank’s Monetary Policy Committee believe that unemployment will rise due to struggling businesses, climbing from 3.6% to around 5% in 2024.

The UK’s economy is expected to shrink by the end of the year, and contract by around 0.25% next year, down from the previously forecasted 1.25% growth – which could leave the UK at a real risk of recession.

The current crisis will likely have a huge impact on the economy as struggling households tighten their belts. However, inflation historically has always had a powerful influence over precious metals - because as economic uncertainty grows, investors tend to flock back to gold and silver. Could this present an opportunity for long-term investors who are able to put a little of what they can afford into planning for those curveballs in life?

Nothing says financial security for the future like the possession of real money: physical gold and silver.

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This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.

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