The neighbourhood problem

19 May 2014 By Ian Campbell

House prices aren’t the only worry. There’s also the neighbours. The UK is growing far faster than the euro zone, worsening a big external deficit. If it continues, rates will also diverge. That would be likely to push up sterling and make UK growth still more unbalanced.

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Euro zone economic growth was much weaker than expected in the first quarter. The European Union’s Statistics Office estimated that the economy of the 18 countries sharing the euro expanded only 0.2 percent on the quarter in the first three months of the year, rather than the 0.4 percent growth expected by economists.

Eurostat also revised down the economic growth rate for the last three months of 2013 to 0.2 percent quarter-on-quarter from 0.3 percent.

German economic growth will probably slow in the second quarter after an unusually mild winter boosted expansion in the first, the Bundesbank said on May 19. The German ZEW survey of investment professionals fell in May for the fifth month in a row, suggesting that confidence is falling in Europe’s biggest economy.

The UK’s GDP increased by 0.8 percent in the first quarter after growth of 0.7 percent in the fourth quarter of 2013. GDP rose by 3.1 percent on the first quarter of 2014 but remained 0.6 percent below its peak level in 2008.

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