US growth stumbles as oil hits $40

Growth in the US economy slowed more sharply than expected over the spring, as rising oil prices put the brakes on consumer spending, government figures showed yesterday.

Growth in the US economy slowed more sharply than expected over the spring, as rising oil prices put the brakes on consumer spending, government figures showed yesterday.

The news came as crude prices spiked to a fresh all-time high of $43.85 a barrel in New York on worries over the security of crude supplies. In London, Brent broke through $40 for the first time since 1990, closing up 78 cents at $40.03.

The world's largest economy posted growth of 3 per cent in the second quarter after the 4.5 per cent rise in the first three months of the year.

The slowdown was driven by a marked slackening off in household spending. Consumer spending rose just 1 per cent in the second quarter, a mere shadow of the robust 4.1 per cent first-quarter gain and the slowest increase since 2001, when the economy was in recession.

Wall Street economists, who had looked for GDP to slow less sharply to 3.6 per cent, said they were surprised by the big pullback in consumer spending.

Analysts said the weak figures would dampen speculation that he Federal Reserve had embarked on a plan to raise rates at every meeting after the increase last month.

"This may increase market chat about the possibility of the Fed skipping a meeting, probably September," Ian Morris, at HSBC in New York, said. While the latest quarter proved weaker than expected, the economy is already showing signs of quicker growth.

Other data yesterday showed consumer spirits had brightened slightly in July, helping the dollar reverse early falls to end up against the euro at $1.2025.