Which CE for Merlin?

I believe Magical Girl of Sapphire would work best, especially if you have it on MLB. Arts effectiveness only buffs Merlin's art cards, and unless you plan on having him dish out his own damage with Arts Brave Chains, then I'd say prioritizing his NP is better for longer battles because of how spammable it can be regardless of how his deck turns out.

Innocent Maiden isn't a good choice for Merlin in my opinion, because it buffs Merlin's Quick when he only has one Quick card in his whole deck. Besides, the NP regen isn't really necessary when Merlin can provide that on his own at a greater rate with his NP and passive skill.

Ideal Holy King would be good if you want your team to last, but you probably shouldn't use it on Merlin when his NP heals his entire team and can be stacked if his NP gain is good. Ideally, try to use IHK on other Servants that need to fill a slot on the frontline and lack better CE options, or if your team has trouble relying on Merlin's heals alone to stay alive.

Can i have your friend code?

For farming, I use Grand Puppeteer (NP charge 50%, Arts up 15% for 3 turns). It helps him get out of the gate quickly to have his NP ready in a couple of turns usually without using his attack steroid/NP charge. In farming, I usually fight the first wave to charge NPs, then nuke waves 2 and 3 with AoE, so it usually doesn't matter a whole lot.

But in really long fights, I would probably use Prisma Cosmos to build his NP as fast as possible even without using his weaker attack cards (so as not to get in the way of brave chains). Another good one is 2030, but I don't have that one.

Since you probably don't have the ones I mentioned, NP charge CEs are good too, like Dragon Meridian (3*, so somewhat easily MLB'd). Getting his NP off early helps charge everyone, and in tougher fights, you often need to prioritize damage, so passive charge from CE then NP works well.