After 12 months of weak growth, the Eurozone economy showed signs of stalling – growing at an annualized rate of just 0.2% through the second quarter. In response, the yield on 10-year German bunds fell below 1.0% for the first time and yields on other western sovereign bonds were also marked lower on geopolitical risks and economic uncertainty. With the regional inflation rate at 0.3% in August, markets are now fixated on the imminent introduction of some form of Central bank stimulus.
The woes of the Eurozone were in stark contrast to the UK economy which recorded an estimated 3.2% annualised growth through the second quarter – its sixth-successive quarter of economic expansion. The IMF in turn raised its 2014 growth estimate for the UK to 3.2% – expecting it to be the fastest-growing of any developed country. The data were enough to break the long-held MPC consensus not to raise rates – the publication of the MPC’s August meeting minutes revealing the first split interest-rate vote and indicating a 2014 rate rise cannot be ruled out.
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This article was previously published on Tilney prior to the launch of Evelyn Partners.