Sterling and short-dated gilts are most exposed to Bailey’s remarks, because front-end pricing already assumes a November hike is close to a done deal. If he endorses that view, rate support for the pound stays in place. Any hint of patience, or emphasis on the softer jobs market, could pull hike odds lower and weigh on the currency. Oil remains the swing factor: the Bank’s case for tightening rests on oil and gas prices staying well above pre-war levels, so any easing in Brent would weaken the hawkish argument more than anything Bailey says.

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Bailey has spent a month telling markets that high energy prices are making a hold harder to justify, and Bangkok is his chance to confirm or cool a November hike they have almost fully priced.

Summary:

• Bailey appears in conversation at the IIF annual membership meeting in Bangkok at 02:00 GMT (22:00 ET Thursday)
• Bank Rate is 3.75%, unchanged since a 5-4 vote to cut last December
• The MPC held 6-3 in September, with three members voting to hike to 4% and Bailey voting to hold
• Inflation is well above the 2% target and expected to rise further as Iran war energy costs feed through
• The labour market has softened, which is the main argument for waiting
• Markets and most economists expect a hike at the 5 November meeting, a week after the 28 October Budget

Bank of England Governor Andrew Bailey takes the stage at the Institute of International Finance’s annual membership meeting in Bangkok, held alongside the IMF and World Bank annual meetings, on Friday, with financial markets increasingly convinced that the Bank’s next move will be a rate rise. Bailey is due to appear in conversation with IIF President and Chief Executive Tim Adams at 02:00 GMT (22:00 US Eastern on Thursday), less than three weeks before the Monetary Policy Committee’s 5 November decision.

Bank Rate stands at 3.75%, where it has been since a narrow 5-4 vote delivered a quarter-point cut last December. At its most recent meeting in September, the MPC held the rate by a 6-3 majority, according to the Bank’s published minutes. Bailey was among the six voting to hold, and the other three preferred an immediate increase to 4%.

Inflation is the central problem. Consumer price inflation is running well above the 2% target, as it has for almost all of the past five years. The Bank expects it to climb further into early next year as higher oil, gas and electricity costs linked to the Iran war work through to household bills. The Bank has said those costs have so far had only a limited effect on wider wage and price setting. It has also said that the longer energy prices stay high, the more likely it becomes that Bank Rate will need to rise.

The jobs market offers a partial counterweight. Unemployment has drifted higher and private-sector pay growth has eased, and the slack that implies is a key reason the majority preferred to wait in September.

Bailey’s tone has hardened since that vote. He warned in late September that persistently high energy prices would make it harder to keep rates on hold, adding that the Bank could not wait for complete evidence on inflation expectations. He has since argued that looking through an energy shock only works while expectations stay anchored. Markets have taken the hint: traders price a high probability of a November hike, and a Reuters poll this week found a large majority of economists expect Bank Rate to rise to 4%.

Three questions will shape the reaction:

• November pricing: whether Bailey endorses it or pushes back, having previously told lawmakers the Bank has no unconditional plan for rates.
• The Budget: how much weight he gives the 28 October Budget, which lands a week before the decision.
• The labour market: whether he dwells on its softness, which would suggest the majority is not yet ready to move. 

This article was written by Eamonn Sheridan at investinglive.com.

Source: Investing Live - Central Bank