BoE Governor Bailey (opening remarks) says there is no evidence of 2nd-round effects, but we cannot draw too much comfort from this; stands ready to adjust policy stance as the outlook changes

RATES If the Middle East conflict persists and second-round effects are seen, BoE will likely need to raise rates. Current market pricing reflects the risk premia rather than central expectations for the Bank Rate. Rate curve seems reasonable. ENERGY For the pricing outlook, the focus is on gas prices and crack spreads over the crude benchmarks themselves. There is little as of yet to suggest higher energy prices are embedded. INFLATION We expect indirect inflation effects to add 0.5 percentage points to inflation in H2 2026. While household inflation expectations have fallen, they remain elevated. Pressures are building more slowly than we thought in April. Lack of evidence does not rule out future second-round effects. Impact on wages may not be seen until "well into 2027". Overall assessment of second-round effects remains tentative. Weak demand is limiting the pass-through of higher costs to prices. Bailey said he is seeing broader slowing in domestic inflation. ECONOMYUK economic activity is subdued, and the labour market is soft.LABOUR MARKETSpare capacity in the job market is likely to reduce workers' capacity to get pay rises.