If you have Indefinite Leave to Remain, your baby will be born British -- and, of course, will most probably acquire your nationality, as well, by descent. If you are married to someone who has ILR, but you do not, your baby will be born British. If you do not have ILR, then your baby will acquire only your nationality and will not be British.
However, if the child is born in the UK (and not elsewhere) and then you later obtain ILR, then your baby will have an automatic right to register as British without going through the naturalisation process. In that case, you will need to submit Form MN-1 after you obtain ILR. (You may, in fact, be able to submit it together with your SET(O), but I'm not sure about that. Check with the Home Office.) Another option would be for you to submit the Form MN-1 with your Form AN naturalisation application (if you want to naturalise).
I submitted my son's just after I got ILR. It was more expensive that way, but ensured that he was recognised as British as soon as possible.
