May BoE MPC announcement will likely see monetary policy unchanged

The focus in the upcoming week will primarily be on the Bank of England. The May MPC announcement (Mon) will likely see monetary policy unchanged. However, of more interest will be Wednesday's release of the Inflation Report. 

Even before Friday's sterling rally it seemed likely that a stronger exchange rate would be a key influence on the BOE's updated economic projections. The Bank has also promised a review of its supply side assumptions. Given the ongoing weakness of productivity growth it may feel obliged again to push out the expected recovery in productivity. 

"With MPC members remaining anxious about the risk of pervasive disinflation, despite the recent rise in oil prices, we expect the overall message to be dovish, maintaining the current assumption of economic slack estimated at 0.5%." said Lloyds Bank in a report 

A somewhat contradictory note is likely to be struck by the latest labour market data (also Wed). A pick up in wage inflation remains the needed development that will shift the MPC in a more hawkish direction. 

Lloyds Bank expects a further fall in unemployment and rise in earnings growth in the three months to March that will leave a November interest rate rise still on the cards.