A Big First Week for Mark Carney

Jason Alden | Bloomberg | Getty Images

It's a big week for U.K. monetary policy. Mark Carney has just taken over as Governor of the Bank of England and he's got a lot to prove.

On Thursday he attends his first rate-setting meeting but faces a delicate decision, which probably means tempering high expectations.

His predecessor Mervyn King left office having being outvoted on the last 5 occasions to extend quantative easing (QE). The new governor will want to make sure he does not follow suit.

(Read More: Promising UK Data Greet Carney on First Day)

He has, after all, just one vote out of nine, and over the last few weeks data suggests growth seen in the first quarter has continued in the second. PMIs are all above 50, retail sales volumes were strong in May and housing activity is showing signs of real strengthening. Indeed, figures out on Monday suggest recovery in two of the weakest parts of the economy -manufacturing and mortgage lending - is gathering steam.

Of course we have been here before and there is always the chance future data may again disappoint, but against this current backdrop it's very unlikely a majority of the Monetary Policy Committee (MPC) are ready to restart asset purchases.

Carney could of course argue the recent surge in gilt yields and interest rate expectations means there's still a case for more QE but that will probably have to wait a few more months. He will undoubtedly want to get his feet under the table first.

Another area for debate is forward guidance. Whether it's this month or not, Capital Economics says the bare minimum is likely to be a commitment to keep policy loose until a certain threshold has been reached. A bolder step would be to commit to loosen policy further until a threshold has been reached. That threshold could be for nominal GDP, unemployment or wage growth.

(Read More: UK Economy: Pre-Crisis Levels to Remain Elusive)

Other measures we may see in time might focus more on bank lending. The committee has fully supported funding for lending and are likely to back more initiatives in this area.

We now know that not only did the country avoid a triple dip recession but following the latest revisions it also avoided a double dip.

That was the good news - the bad news was that recession post the Lehman's collapse was much deeper than originally thought. It means the economy is still some 4 percent below its peak compared to thoughts that it was just 2.5 percent.

When you factor that in, combined with the still likely drag from the public sector following the Government's Spending Review, it's clear Carney will have his work cut out to make sure the UK reaches escape velocity.

(Read More: Carney Takes Bank of England Reins Amid Bond 'Carnage')