Bailey's Mansion House speech due at 9:00BST

Governor Bailey is due to deliver his Mansion House speech this morning. The Bank of England website shows that the text will be released at 9:00BST but that a video feed will be available to watch the event from 8:30BST.

• We note that the last "big" speech Bailey gave that focused on the economy, the recovery and monetary policy (rather than on issues such as climate change, LIBOR reform etc) was on 8 March at the Resolution Foundation when he delivered a speech "Getting over Covid" (see link here). In this speech he pointed to the fact that QE was due to continue until the end of the year and that forward guidance emphasized that if the outlook for inflation deteriorated, the progress the Bank had made on the toolkit.
• Of course, since then risks are that inflation overshoots (last week's Monetary Policy Statement stated that CPI is now "likely to exceed 3% for a temporary period" while former Chief Economist Haldane has voted to reduce the target stock of asset purchases in both May and June.
• There will be focus on whether King gives a view on how much inflation could overshoot in his personal view, how likely it is to be transitory and how concerned he is about higher inflation in general.
• The other big topic for markets is sequencing, for which the Bank has already announced that there is a staff review underway. The previous guidance of only reducing the size of the balance sheet when Bank Rate reached 1.50% has appeared obsolete since Bailey's comments in both a Bloomberg interview and at last year's Jackson Hole. Indeed, some analysts are pointing to negative rates reducing the lower bound, and note that by reducing the lower bound, the spread between the lower bound and 1.50% has effectively increased. It will be interesting to see whether Bailey touches on this argument or if he gives any further updates on the Bank's work on the issue. Most analysts now expect the balance sheet to begin reducing when Bank Rate is somewhere between 0.25-0.50%, either occurring after or alongside a hiking decision. Goldman Sachs notably expect balance sheet reduction before the first hike.