6 February 2026

Jonathan Sparks

Chief Investment Officer, UK, HSBC Private Bank and Premier Wealth

This week’s Bank of England (BoE) Monetary Policy Committee (MPC) meeting was meant to be a relative non-event. No cut to interest rates was expected, although there were likely be a couple of dissenting votes in the nine strong committee. Instead, the vote to hold interest rates passed by only the thinnest of margins at 5-4.

This surprising dovish rate call was fuelled by some fresh analysis on wage data in the BoE’s Monetary Policy Report. It concluded that UK wage growth was likely to fall and there would likely be a ‘negative drift’ in wages, below that expected by businesses in the benchmark Decision Maker Panel surveys. Businesses were estimating that wage growth would be around 3.7% by the end of the year but the BoE reckons the slackness in the labour market and their own downgrades to growth will drive this lower.

Where wage growth is heading is pivotal for the path of interest rates. It’s largely the discomfort of a now narrow majority of MPC members over lingering wage pressure that has prevented them from calling for further rate cuts. The reasoning is that, even if growth is well within the range to justify more rate cuts, if business and workers think that higher inflation is entrenched, they will keep pushing for higher wage growth. The fact that inflation is still running a little hot means they can be forgiven for assuming 2% inflation is still on the distant horizon. Therefore, it is better to wait for lower wage growth and inflation before cutting rates than risk sending the signal that 3% inflation is the new 2%.

By holding rates this remains the majority view. But there was definitely enough of a steer from BoE Governor Bailey that, come April, inflation will fall much closer to 2%, thanks to freezes on energy prices and rail fares. Additionally, there would be less upward pressure from a more gradual rise in the national living wage. Meanwhile, some of the economic surveys had pointed to a pick-up in activity that shouldn’t be brushed aside as noise.

In other words, while the economy probably should have rates nearer to 3.0% there was no emergency forcing them into acting too hastily – far better to wait until April when inflation should be lower and a large number of financial year-end pay deals will have been settled.

This logic chimes very well with our relatively long held and out of consensus view, that the MPC will cut rates in April, July, and November, 0.25% each time.

For gilts, this is good news. Gilts reacted to the BoE with lower yields (higher prices), as traders baked in the chance of earlier and deeper cuts. Yet, they are still pricing one less cut than we are by the year end. Gilts are an effective alternative to cash, and they are our favoured UK asset class. Naturally, this means that there is room for gilt yields to fall if we are correct. It should also mean that GBP upside will be constrained from here and we keep our more neutral view on sterling.

It has been another eventful week for gold and silver. Silver is now down a staggering 34% from its peak, while gold has fallen 10%. This volatility is a stark lesson in what can happen when an asset draws in a wave of speculative investors. When prices rise very steeply – as they did before the precious metals fell – investors can flee an asset just as quickly as they piled in. In this situation, an investor needs to step back and ask if the fundamental case for gold remains.

We believe it does because the three key structural drivers are there: central banks are diversifying their currency exposure and gold is a key player in that risk management; geopolitical risk remains, and its set to be a persistent risk; and fiscal stability risks in the US haven’t evaporated overnight. Gold remains an effective asset to build portfolio resilience amid these risks. Silver much less so, in our view. Hence our favourable view on gold as a safe haven asset that can build portfolio resilience.