UK FISCAL: Reeves: "I reserve the right to be able to take action at any point"

• 2) Governor Bailey (and the other dovish MPC members in general) are not as concerned about the upside inflationary risks as they were. There was a box in the MPR that pointed to food prices impacting inflation expectations but not having a corresponding impact on future inflation outcomes. So it seems as though consumer inflation expectation data will not be as important for the market as it was previously. Conversely labour and inflation data will have even more importance than previously.
• 3) With the other 8 MPC members having entrenched views and what they are watching fairly clearly set out in the individual view paragraphs in the Minutes, market volatility around non-Bailey speeches is likely to be much reduced. This week we have appearances from Lombardelli (today), Greene (Tuesday / Thursday) and Pill (Wednesday) – but we know that none of these members are likely to vote for a December cut. And further, we know that cuts can be delivered in the near-term via 5-4 votes without needing any of them to change their views.

As we wrote in our BOE Review (see full PDF here), we think that if labour and inflation data comes in line with the Bank’s updated near-term projections and the Budget is broadly in line with expectations (with some disinflationary measures and an income tax increase) we think it would be likely that Governor Bailey would support a December rate cut. We also think that the views of the other 8 MPC members are more entrenched than we had previously expected (despite the 5-4 vote in line with our base case). This has three main implications for UK market drivers in the coming weeks:

• 1) Speeches from Governor Bailey will have huge focus on them – particularly after the first round of labour and inflation data. He hasn’t made clear if he will only vote a cut if data comes in softer than the Bank’s projections or if it is in line with those projections. We look at this in more detail in the BOE review but the takeaway is that it will be harder for the data to undershoot expectations: private regular wage Q3 expectations are 0.4ppt below the Bank’s August projections; services CPI is expected to not see any bounceback in October and to continue to decelerate at a faster pace than the August MPR projections. The only category of CPI that appears to not have a high bar to see data coming in below the November projections is the “food and non-alcoholic beverages” category. The problem is that Governor Bailey currently has no speeches scheduled.

SFIJ6 96.70/80 call spread vs. 96.25/15 put spread paper paid 1.5 on 7.5K for the call spread.