The Riksbank, Sweden's central bank. Banks say the Basel committee is forcing another round of capital raising © Bloomberg

Monetary policy is back on the top of the agenda this week with central bankers from the eurozone and Sweden’s Riksbank due to meet on Thursday to decide interest rates.

There is an update on eurozone banking activity in the first quarter of the year with the ECB’s Bank Lending Survey. Wednesday sees an update for the UK labour market, with new data on earnings and unemployment, and on Friday the Purchasing Managers’ Indices for the eurozone in April are published.

Positive news was delivered for both the ECB and Riksbank on inflation last week. The eurozone rate for March was revised up from an initial estimate of deflation to show prices flat over the year, while March price growth in Sweden moved to 0.8 per cent year-on-year, the fastest pace in three years, and a sign that the negative rates imposed by the Riksbank at least are having the desired inflation stoking effect.

Manuel Ortiz-Olave, of Monex Europe, said: “Sweden’s recent economic recovery has been impressive, and the latest inflation data could prove a boost for the Riksbank in next week’s meeting.”

No new policy action will come from either central bank on Thursday, however given that eurozone inflation expectations have retreated since the ECB’s additional easing was announced last month. It is likely to reiterate that its arsenal is not exhausted and that further easing is still an option. Conversely, the tone at the Riksbank will be less dovish than that previously voiced with the option of further QE likely to be talked down unless any deterioration in the outlook for growth and inflation arises.

Bank lending in the first quarter is widely thought to be on the same path seen in the final quarter of last year. Lower interest rates from ECB easing measures are stimulating demand for both new loans as well as refinancing of older more expensive debts.

PMIs on Friday are expected to show improvement in both manufacturing and services activity in the eurozone for April. Improvement in labour markets has been driving consumer spending which will push the services PMI to 53.3 up from 53.1 in March. Manufacturing activity should also show improvement, with the PMI moving to 51.9 from 51.6 in February.

UK labour market data should show earnings growth continuing. Growth in total pay accelerated to 2.1 per cent year-on-year in the previous release. Consensus sees growth of 2.3 per cent year-on-year when data are out on Wednesday. The unemployment rate should remain at 5.1 per cent.

Copyright The Financial Times Limited 2018. All rights reserved.