Everybody knows the one about the two handed economist - on the one-hand UK growth is slowing but on the other it's not down and out. But we only need to look at the latest MPC minutes to get an idea of how challenging current conditions are. With the first three-way split in MPC voting for two years, we don't need any jokes about three-handed economists please! In the Eurozone, business surveys suggest confidence is dipping but lending to non-financial corporations continues apace. In the US, the housing market continues to weaken.

The UK economy is still growing, but it's slowing. On the first estimate of Q1 GDP, quarterly growth slowed to 0.4% q/q, but at 2.5% y/y, annual growth is not that far away from trend (2.7% y/y). This underlines two major themes that characterise our economy at the moment. On the one-hand, we are still growing at a reasonable lick. But the days of stellar growth seen in 2006 and 2007 are gone, for now at least. UK consumers, the previous powerhouse of growth, turned more cautious in March. Retail sales growth dipped to 4.4% y/y (from an average of 6.3% y/y for January and February). With consumers unlikely to single-handedly carry the economy on their shoulders, we expect UK exporters to stand in and offer more support in the months ahead.

So we find ourselves in a position where the economy is starting to slow while inflation remains above target. Throw on-going tensions in the credit market into the mix and these are not the easiest waters to navigate. We only need to look at the last Monetary Policy Committee (MPC) minutes to get an idea of how challenging policy makers are finding it. One MPC member voted for a 50bps cut in the bank rate, others opted for a 25bps cut and two backed no change. It looks like a new creature has been born - the three-handed economist...

In the US, the state of the housing market was the dominant theme. New and existing homes sales slipped further in March. The biggest decline was in new home sales which fell 8.5% on the month (37% y/y). Activity fell across each major region with builders forced to slash average prices by 11% y/y. Existing home sales are now down by a fifth on last year. But, perhaps most concerning is that supply on the market is now equivalent to 11 months of demand for new homes, and 10 months for existing homes. To put this into context, a stable market is consistent with 6 months of demand. As a result, forecasts for US growth have again been trimmed with most forecasters now expecting the US to flirt with recession in 2008 and have a slower climb out of the trough through next year.

April's purchasing managers' index (PMIs) for the Eurozone hinted at a loss of momentum. The Composite index dipped to 51.9, just below the average for the first quarter. This is still consistent with 0.3% q/q GDP growth in the euro area but at a pace which is below the long run trend (0.5% q/q). The manufacturing PMI, which had previously proved to be quite resilient, dipped to its lowest level in three years with most of the decline attributed to Germany. This suggests that the strength of the euro and weaker external demand (export orders fell below 50, indicating a contraction) are finally beginning to have an effect. Meanwhile, the services PMI was broadly unchanged but the mix of growth changed. (German services moved up a gear while French services dropped back). Lending data for March continued to slow with credit growth dipping to 10.3% y/y. However, lending to private, non-financial companies continued to edge up, reaching 15.0% - its highest level since the euro was launched.

Confidence surveys across the euro region reinforced the PMI readings. After consistently beating expectations in the first three months of the year, the German IFO (a survey of 7,000 German businesses) finally surprised on the downside in April. The IFO posted its sharpest fall since September 2001 as confidence in the outlook fell to its lowest level in 2½ years. In France, consumer spending growth slowed to 1.2% y/y as manufacturers sentiment slid to a sixteen month low. Things were only marginally better in Italy where consumer confidence moved up from March's four year low.