US growth edges higher

Economic growth in the United States was even stronger than expected between April and June.

New figures show that the economy expanded at an annual rate of 5.3% in that period, compared to the previous estimate of 5.2%.

Analysts had expected an even greater revision, as the red-hot US economy continues to defy gravity in its eighth year of economic expansion.

It also means that the growth rate is continuing to accelerate, rising from 4.8% in the first quarter of the year.

So far, the rapid economic growth is putting relatively little pressure on inflation. The chain-weighted price index, a measure of inflation, rose by 2.6% in the second quarter, an upward revision of just 0.1%.

The rapid growth could influence the US central bank, the Federal Reserve, to raise interest rates further.

The Fed last raised rates in May by 0.5% to 6.5%, and held its fire earlier this week.

But the Fed has predicted US economic growth will slow to around 4.25% for this year as a whole, and 3.5% for next year, much slower than the current growth rate.

For that forecast to come about, growth will have to slow down substantially in the second half of the year.

Signs of a slowdown

There were some encouraging signs in the current figures that this may be happening.

Real personal consumption expenditure increased in the second quarter of the year at an annual rate of just 2.9%, compared to 7.2% in the first quarter.

The extra growth in the current period was led by increased government spending, and the build-up of inventories by private firms, both of which are likely to be temporary.

Combined with a slowdown in housing construction, which is likely to affect the purchases of goods like domestic appliances, furnishings and furniture in future months, these changes may mean that the economy will slow later in the year of its own accord.

With leading indicators, like job creation, also showing signs of a slowdown, and with equity markets drifting sideways, the Fed would prefer to wait for the economy to slow down of its own accord - at least until after the election.

But with interest rates likely to edge up both in Europe and the UK, as economic growth accelerates, there is still more than an even chance that the Fed will be forced to raise interest rates again.