BoE MPC minutes to highlight tension between low inflation and robust activity

The March BoE Minutes (Wednesday) are likely to be fairly neutral for GBP, highlighting concern with an outlook of near-term disinflationary pressure but medium-term upside risks to activity and wages. 

Governor Carney noted in a speech last week that trade-weighted GBP appreciation is "reinforcing the disinflationary impulse from abroad", adding to the current policy dilemma. 
Indeed, while GBPUSD depreciated more than 2% last week, to be more than 5% lower YTD, pronounced EUR weakness has seen GBP appreciate almost 4% this year on a trade-weighted basis. 

Barclays notes as follows: 

• Our economists continue to expect a 9-0 vote in favour of no change with a split vote not likely to materialize again until H2 2015. 
  
  
• We continue to forecast further GBPUSD depreciation and see some risk of EURGBP appreciation as we approach the highly uncertain UK 7 May general election and the first Fed rate hike at its June meeting. January UK labour market data (Wednesday) should continue to improve, in line with broader economic activity. 
  
  
• We expect unemployment to drop to 5.6% in January (consensus: 5.6%; last: 5.7%), in line with a healthy drop in the claimant count last month. Consistent with tight labour market conditions, we forecast average weekly earnings growth to increase further to 2.4% 3m/y (consensus: 2.2%; last: 2.1% 3m/y in December) on strong bonus pay and further strengthening of core earnings (Barclays: +1.9% 3m/y; consensus: 1.8%; last: 1.7%). 
  
  
• We expect February claimant counts to drop by 35k (consensus: -32.5k; last: -38.6k).