Understanding the GBP/EUR: The eurozone's 'real' recession while UK suffers nothing more than a 'statistical mishap'

The situation is the same for the Eurozone where output also languished below the Q1 2007 level in the first three months of this year. More worryingly, a sixth consecutive quarter of negative growth means that this downturn has now lasted longer than the financial crisis. Given the dire economic outlook for several peripheral countries there is little prospect of improvement in 2013.

A big factor in the disappointing if predictable result is that the French economy again contracted by 0.2% in the first quarter of 2013. We expect that this situation will persists for a while and given the weight of France in Europe the rest of the currency union will be affected. The other major Eurozone economy, Germany, is estimated to have grown in Q1 2013, but at only 0.1% quarter on quarter. It, too, borders on the brink of a downturn. Finland, another nation considered part of the economically solid Eurozone core, also entered recession with a second consecutive quarter of negative growth.

A rare piece of good news in the latest Eurostat release came from Portugal, where the pace of output declines slowed from -1.8% in Q4 2012 to -0.3% in Q1 2013. Also, Austria narrowly avoided recession with stable GDP in Q1 after a fall at the end of 2012.

In terms of monetary policy, the latest GDP figures are unlikely to shift the stance of the European Central Bank significantly following its cut in the interest rate from 0.75% to 0.5%. A further reduction in interest rates is possible but unlikely at present. The purchase of government bonds in a quantitative easing-type policy will probably be reserved for a crisis situation in which the bond markets turn against a country such as Italy or Spain that is of systemic importance.

In sum, the Eurozone continues to struggle as the public and private sectors deleverage and structural reform continues slowly. For next year we expect the Eurozone's GDP to remain roughly stable and further ahead slow growth still looms while internal devaluation hampers the economy in the periphery.