BOE BAILEY: WE NEED TO LIMIT THE IMPACT OF THE CONFLICT IN IRAN; PRE-EXISTING DOMESTIC INFLATION PRESSURES REMAIN HIGH; ECONOMIC ACTIVITY MORE RESILIENT THAN EXPECTED; BUSINESS INVESTMENT HAS GROWN MORE THAN WE EXPECTED

Bank of England Governor Andrew Bailey said policymakers need to limit the economic impact of the conflict in Iran, while noting that domestic inflation pressures remain elevated and that economic activity and business investment have been stronger than the Bank had anticipated. The primary transmission channel runs through energy and commodity prices: a Middle East conflict typically lifts oil and gas costs, which feeds directly into headline inflation and complicates the Bank's disinflation path just as underlying price pressures are already sticky. Sterling and UK gilts are most exposed, since a stronger growth backdrop combined with renewed inflation risk pushes out expectations for Bank Rate cuts and widens the rate differential that supports the currency. Traders should watch the next UK CPI release for the energy and services components, as well as any Monetary Policy Committee minutes that reveal how members weigh the conflict-driven supply shock against resilient domestic demand.

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