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UK Business Barometer Falls

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Lloyds have published their UK Business Barometer for the month of May, contrary to the strength of the British recovery this is showing a further increase to 41 from a level of 66 in April.

GDP growth in the UK is set to hit 3.2% according to a recent upgrade by the OECD, this upward revision follows a reported 0.8% growth spurt during the first quarter of 2014. The International Monetary Fund (IMF) have declared Britain the fastest growing economy of the G10. The welcome growth being experienced by the UK is however regionally asynchronous, this is creating two problems for the authorities.

Firstly, London and the surrounding region are experiencing rapid expansion, estimated at up to 15% over the next 5 years. There is a significant risk of overheating in this region, particularly in the property market where an asset bubble is beginning to form.

Secondly, the remainder of the country including the North, Northern Ireland and Scotland are facing 2014 growth of just 2.1%, this compares to a growth rate in the capitol of 4.2%. These regions are experiencing elevated unemployment levels which are not befitting of the star G10 economy.

The Bank of England (BoE) is experiencing a problem not dissimilar to that of the European Central Bank. How do they encourage growth in one region of the economy while simultaneously dampening it in another. In fact even more tricky for the UK is that fiscal policy is harmonious meaning that there are few instruments available to the authorities that would effect one part of the economy and not another. Governmental regional development policies are one such option available, these have had some success in the past however their effects tend to be short lived. Perhaps the potential devolution of Scotland will in some way ease this headache.

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