Bailey sees case for 25bps rate hike if Iran conflict continues

Bailey stated that a further 25-basis-point rate increase would be warranted if the Iran war continues. He emphasized the need for the UK to contain the conflict's impact on inflation, especially since domestic price pressures were already high before the energy shock.

He pushed back against the idea that the BoE delayed too long, saying that while the recent fall in oil prices is good news, policymakers should not weigh short-term moves too heavily in the absence of firm signs of lasting peace.

He also would not endorse a "two and done" view of rates, citing the conflict's uncertainty, and said he hopes to have a clearer picture of its resolution by December.

On market pricing, Bailey said the upward move in the interest rate curve is partly due to higher risk premia, not expectations of additional policy tightening. He called the current pricing a fair representation of energy risks. Turning to the domestic economy, he cited stronger-than-expected business investment.

Regarding the inflation outlook, Deputy Governor Dave Ramsden said the decline in services inflation seemed to have paused or decelerated. Lombardelli, on the other hand, noted that consumer-oriented firms have less pricing power than business-to-business firms. She further said that public-sector wages do not pose a specific inflation threat and that the latest minimum wage increase was roughly in line with or under projections.

Overall, the BoE is not inclined to take a more hawkish position, meaning the December session will rely heavily on events in the US-Iran conflict, energy costs, and signs of secondary inflation in economic data. Sterling briefly rose on the unexpected 9-0 vote division but surrendered most of those gains after unremarkable remarks.