Brown voices slowdown fears

US consumers remain confident, despite talk of a downturn

Chancellor Gordon Brown has warned that the US and British economies face tough times ahead on both sides of the Atlantic.

On a visit to New York, where he has been meeting business leaders, Mr Brown said the economic slowdown had moved from America to Europe - and may not yet have reached its lowest point.

He told the BBC: "When we met as finance ministers two weeks ago we agreed that it may not yet have reached its bottom.

The overall economy is not growing much at all

Bill Meehan
Cantor Fitzgerald

"At the same time, we are better placed than we have been in the past because of our monetary policy changes in the Bank of England to cope with the uncertainties," he added.

In the Sunday Times newspaper, various economists called for the Bank of England to cut interest rates to stave off a recession in the UK.

A joint effort

Mr Brown said that "each continent has to play its part in restoring growth."

The slowdown has moved from America to Europe

Gordon Brown

Economic growth in the US fell to its lowest rate for eight years during the second quarter of 2001.

The country's gross domestic product (GDP) edged ahead by a mere 0.7%, a little below analyst expectations of 0.9%.

Meanwhile UK growth has fallen to its lowest rate for more than two years.

GDP grew by 2.1% year-on-year in the second quarter of 2001, according to preliminary figures, sharply down from the 2.7% annual rate reported in the first quarter.

Consumer spending in the UK remains buoyant - but some economists think that will not be enough on its own to stave off a full-blown recession.

Little sign of growth

Meanwhile, in the US, the economy continues to be sluggish as businesses and, to a lesser extent consumers, cut back on spending.

Friday's GDP figure follows a rate of 1.3% last quarter and is the lowest rate of growth since the first quarter of 1993.

"The overall economy is not growing much at all," said Bill Meehan, chief market strategist at Cantor Fitzgerald, a New York brokerage.

US GDP figures

2001 Q2: 0.7%

2001 Q1: 1.3%

2000 Q4: 1.9%

2000 Q3: 1.3%

2000 Q2: 5.7%

2000 Q1: 2.3%

1999 Q4: 8.3%

Source: US Commerce Dept

"It also indicates that demand is slowing because the number wouldn't be expected to be that high were it not for continued decline in imports," he said.

A 13.6% fall in business investment over the quarter - the largest drop since 1982 - has put the breaks on GDP growth.

A report last week showed a narrowing in the US trade gap in May, suggesting demand for foreign goods is also being affected by the slowdown.

Consumer demand overall remains somewhat positive, but is waning, Mr Meehan said.

Recovery months away

The slight growth in second quarter GDP means the economy is a long way off from recovery, said Barry Hyman, chief equity strategist at investment firm Ehrenkrantz King Nussbaum.

Looking at the numbers, I wouldn't expect (good economic news) until the first quarter, at the earliest, of 2002

Barry Hyman
Ehrenkrantz King Nussbaum

Mr Hyman does not expect to see recovery before the end of the year.

"Looking at the numbers, I wouldn't expect [good economic news] until the first quarter, at the earliest, of 2002," he said.

The US markets are hoping that the slow growth could spark another interest-rate cut.