European growth figures are showing a mixed but steady picture

Third-quarter growth fell to 0.5% from 0.9% in the previous three months, said Eurostat. The annual rate was unchanged at 2.7%, 0.1% higher than forecast.

Analysts said that the growth rate, though slowing, was still strong enough to prompt an interest rate increase.

The European Commission raised growth targets, while higher rate of inflation was forecast in November.

Getting higher

The Commission said it expected the European Union economy would grow by a faster-than-expected rate of between 0.3% and 0.7% in the three months to the end of December.

In the first three months of 2007, growth is also expected to top the Commission's earlier estimations, expanding by between 0.3% and 0.8%. At the same time, figures showed that the estimate for November inflation had risen from 1.6% to 1.8%.

"Inflation is by no means low," said Edward Teather, an economist at UBS.

"Growth in the domestic economy, as in consumption, investment and government spending, is running above trend and exports are also running above trend," he said.

"As such, it supports the case for ongoing interest rate increases."

Main office

The European Central Bank sets interest rates for the eurozone, the area which covers the nations that share the single European currency.

Its main interest rate is currently 3.25%, but investors expect that to rise to 3.75% during the first quarter of next year.

The eurozone is made up of the 12 countries which use the euro as their currency and have their interest rates set by the European Central Bank.