US growth falls to its slowest rate for four years

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The Independent Online

The pound bounced back against the dollar yesterday after new figures showed that the US economy was growing at its slowest rate for four years.

The pound bounced back against the dollar yesterday after new figures showed that the US economy was growing at its slowest rate for four years.

The US Commerce Department revised down its estimate for GDP growth in the third quarter to 2.4 per cent from 2.7 per cent.

This is the weakest out-turn since the third quarter of 1996 and means that the pace of economic growth has more than halved since the second quarter's 5.6 per cent.

Sterling gained almost a cent at one point against the dollar, hitting $1.4246 from $1.4172 on Tuesday before falling back to $1.4225 at the close in London.

The pound was also boosted by strong UK consumer spending data that undermined hopes of an imminent cut in British interest rates.

Economists said the number was stronger than expected but would not alter the view of the US federal Reserve to keep rates on hold at 6.5 per cent.

"The overall growth rate gives continuing evidence that the economy is in a slower mode," said Carol Stone, deputy chief economist at Nomura Securities. "The Fed should be very comfortable with this."

The reason from the downward revision was stronger imports, weaker exports and lower computer software spending than previously thought.

Meanwhile, figures in the UK showed the Bank of England's plea to households to curb spending plans and avoid the need for further hikes in interest rates had fallen on deaf ears.

Total lending to individuals rose £4.4bn in October, up from September's £4.3bn, the Bank of England said.

Although growth in mortgage lending eased back there was a marked rise in consumer credit, to £1.5bn from £1.1bn in September and £0.6bn in August.

Jonathan Loynes, chief UK economist at Capital Economics, said: "Most of the increase came outside credit cards, suggesting that shoppers are taking advantage of cheap in-house finance deals for purchases of large items such as furniture and durables."

There was little sign of a marked slowdown in the housing market. Mortgage lending rose by £2.9bn compared with September's £3.3bn. But the number of new mortgage approvals - an indicator of future demand - rose by 1,000 to 98,000, while the value of these loans jumped to £10.2bn from £9.5bn.

Brendan Baker, an economist at Lombard Street Research, said: "In these circumstances, talk of the next move in interest rates being down is premature."

Meanwhile, the European Commission said UK rates might have peaked. In its annual review of the EU economy, it said: "[UK] inflation is now among the lowest in the EU and the cycle of interest rate rises may have come to an end," it said.

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