US ready to inject cash as GDP is revised down - Business News - Business - The Independent

US ready to inject cash as GDP is revised down

But better news for UK as growth figure is revised upwards

The chairman of the US Federal Reserve, Ben Bernanke, signalled yesterday that he was prepared to turn on the banknote printing presses to prevent the country from sliding into a double-dip recession.

There was better news across the Atlantic as Britain revised her growth figures marginally upwards. But economists warned that the surging recovery would prove unsustainable.

Mr Bernanke said he was surprised that the recovery was at a "pace somewhat weaker" than expected as he outlined potential measures to prevent the economy slumping. His comments, in a speech to the Fed's annual symposium of central bankers in Jackson Hole, Wyoming, followed news that US GDP growth in the second quarter was slower than previously thought.

Mr Bernanke backed quantitative easing by the Federal Open Market Committee (FOMC) as one of the primary tools to boost the economy. "The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly," he said. The issue was not whether the FOMC had the tools to support economic growth but "whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool".

Earlier, the US Bureau of Economic Analysis said America's annualised GDP rose 1.6 per cent between April and June – a downward revision of its estimate of 2.4 per cent last month. The growth rate was significantly lower that in the first quarter, when real GDP rose by 3.7 per cent, and reflected a rise in imports and a sharp fall in investment in inventories.

Paul Ashworth, senior US economist at Capital Economics, said the revision "will no doubt fuel further speculation that the economy is sliding back into recession". Yet, it was not as bad as some had feared, with previous polls predicting a drop to less than 1.4 per cent, and the US markets bounced after the figures were released. Mr Ashworth said: "[The second quarter] wasn't as bad as the headline GDP figure looks but that doesn't mean Q3 is going to be any better. It could easily be even worse."

Britain's economy grew faster in the second quarter than previously thought, the Office for National Statistics said yesterday as it revised its figures for GDP growth up by 0.1 percentage points to 1.2 per cent. Even before the revision, second-quarter growth had outstripped expectations. Yet although the three months saw the fastest quarterly growth since 1999, economists are warning of uncertainty ahead.

The biggest boost to the second-quarter numbers came from construction sector output, which was revised upwards by nearly 2 percentage points to 8.5 per cent – enough to offset a downward tweak of 0.2 percentage points in service-sector growth.

Not only is such strong construction growth likely to dip, but the £1bn hike in inventories is also unsustainable, say commentators. Quarter-on-quarter rises in household and government spending – of 0.7 per cent and 0.3 per cent, respectively – are also likely to fall back as public-spending cuts come into force. With the contribution from net trade broadly flat, any benefits from the weakness of the pound are largely being absorbed.

Samuel Tombs, of Capital Economics, said: "While the recovery picked up considerable pace in the second quarter, the absence of any signs that the economy has become better balanced leads us to expect pretty sluggish growth over the next year or so."

A separate ONS report showing a fall in business investment added to the uncertain outlook for the UK economy. It dropped 1.6 per cent in the second quarter but remained 1.9 per cent higher than a year earlier.

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